Baosteel Bid for Aquila Resources After Fall in Valuation

Baosteel Group Corp.’s A$1.4 billion ($1.3 billion) joint offer for Aquila Resources Ltd. came after a fall in the valuation of the assets to “reasonable levels”, a company executive said.

“Baosteel has been looking for acquisitions over more than a decade,” Baosteel Resources International Co. General Manager Li Qingyu said today in a phone interview from Sydney. “Now with commodity prices trending lower, the valuation of Aquila’s assets has returned to reasonable levels.”

Baosteel Resources, the mining investment unit of Baosteel, and Aurizon Holdings Ltd., yesterday offered A$3.40 a share in cash for Aquila, a 39 percent premium to the last closing price of the Australian ore and coal company. Baosteel in 2009 bought a 15 percent stake in Aquila at A$6.50 a share, and a further 4.6 percent stake in December.

Iron ore, a key steelmaking ingredient, fell into a bear market in March amid a credit squeeze and rising stockpiles. Ore with 62 percent content delivered to Tianjin has lost 21 percent this year to $105.90 a dry ton yesterday, according to The Steel Index Ltd.

Aquila rose 0.9 percent to A$3.37 at 2:15 p.m. in Sydney trading. It surged 36 percent yesterday after the bid was announced. Still, the stock has declined the four straight years through 2013.

Buying Aquila would give state-owned Baosteel, parent of China’s biggest publicly traded steelmaker, and Aurizon, Australia’s largest haulage company, a half stake in the A$7.4 billion West Pilbara iron ore mine, port and rail project in Western Australia.

Baosteel was attracted by the “long-term competitiveness of Aquila’s iron ore project,” Li said. “We believe that our cash offering is appealing to the shareholders.”

Baosteel will conduct further feasibility studies on the ore project once the transaction is completed, Li said, declining to give a timeframe or an estimate of costs for developing the mine. The group is “open” for talks about partnerships for the project, though there’s no serious talks now, he said.

— With assistance by Helen Yuan

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