Posco Invests in Australian Ore Mine, Brazilian Mill

July 16 (Bloomberg) -- Posco, the world’s third-biggest steelmaker, will invest in an iron-ore project in Western Australia and in a Brazilian mill to expand markets and raw material supplies outside of South Korea.

Posco will spend 194.7 billion won ($162 million) to buy a 24.5 percent stake in the Australian Premium Iron project, the Pohang, South Korea-based company said today in a statement. It also agreed to buy about 20 percent of a steel venture planned by Vale SA, the world’s largest iron-ore producer, and Dongkuk Steel Mill Co., according to an e-mailed statement distributed today by Rio de Janeiro-based Vale.

Posco Chief Executive Officer Chung Joon Yang is building plants and investing in mines in countries including Indonesia, setting aside a record $8.7 billion for capital spending this year. Posco, which gets 70 percent of sales from the domestic market, will gain a foothold in the South American country and be able to supply the U.S. from the Brazilian venture, it said.

“The iron-ore mine investment is very positive,” Um Jin Seok, an analyst with Kyobo Securities Co., said in Seoul. “The Brazil venture is not a bad deal because Brazil is a fast-growing market. It’d be better to join an existing project instead of starting from the beginning.”

Posco rose 0.9 percent to close at 491,500 won in Seoul trading today, outperforming a 0.7 percent loss in the local benchmark Kospi index.

Increased Self-Sufficiency

The investment in the Australian project, being developed by American Metals and Coal, Coal International Inc. and Aquila Resources Ltd., will boost Posco’s self-sufficiency ratio of the material to 34 percent from 18 percent, the company said. Posco will receive 9.8 million metric tons of iron ore a year from the mine, about a fifth of its annual needs, it said.

Posco will buy its stake from American Metals, whose holding will drop to 25.5 percent. Aquila Resources will retain its 50 percent stake.

Vale’s planned steel plant in the Brazilian state of Ceara is expected to produce 3 million tons of slabs a year after completion by 2014, and may double its capacity to 6 million tons in a second phase, the Brazilian company said.

“We expect some synergy in that Posco has the world’s best expertise in terms of furnace construction and operations and we can also diversify investment funding for the project,” Kim Sun Hong, a spokesman for Seoul-based Dongkuk, said by telephone today, before Vale announced the agreement.

Murchison Stake

Posco earlier this year agreed to buy as much as 15 percent of the Roy Hill iron-ore project in Australia and a 7.8 percent stake in a coal mine in Mozambique. Posco’s Australian unit today increased its shareholding in Murchison Metals Ltd. to 13.91 percent, making it the iron ore miner’s largest shareholder.

Separately, Posco said today in a regulatory filing it will pay a mid-year dividend of 2,500 won.

Posco is ranked as the world’s third-biggest steelmaker by the World Steel Association, with ArcelorMittal and Baosteel Group Corp. rated above it. According to the American Institute for International Steel, the South Korean mill comes fourth, after ArcelorMittal, Hebei Iron & Steel Group and Baosteel.

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net