China’s Hunan Valin Iron and Steel Group is set to buy more than 16% of Fortescue Metals Group for $1.2 billion, adding to a recent rush of Chinese investment in Australian mining assets as China attempts to secure supplies of key industrial commodities.
Under the terms of the share agreement, Hunan Valin will buy 225 million new Fortescue shares for $558 million, or $2.48 each.
The Chinese investor has also entered into a conditional agreement with US fund based Harbinger Capital Partners to purchase 275 million of their existing shares.
The acquisitions will be funded out of cash reserves and finance facilities.
The Valin deal, signed in Hong Kong last night, will give the Chinese steel mill additional off take and a seat on the Fortescue board for its chairman, but no rights to marketing or representation on management committees.
Fortescue’s chief executive officer Andrew Forrest said the deal highlighted the appeal of Fortescue and its importance in the global iron ore industry.
“This placement provides Fortescue with a cornerstone Chinese equity partner which will only enhance our ability to grow and prosper,” he said.
“The depth of the relationship and the combining of the shared growth interests of the two companies should facilitate enhanced access to China’s financial sector which would be of great benefit to Fortescue.”
Fortescue is trying to raise funds for the expansion of its operations in the Pilbara.
The miner had originally planned to fund the expansion to 120 million tonnes with the funds from free cash flow, before the global downturn slowed demand for iron ore.
The deal with Valin will not cover the full costs of an expansion, however, the miner has said it is currently in talks with China Investment Corp to cover the remaining $3 billion in expansion funds.