China-led group agrees to mine deal

A consortium led by Hebei Iron and Steel Group, China's biggest steelmaker by output, has reached a binding agreement to buy a controlling stake in South Africa-based Palabora Mining Co, from international mining giant Rio Tinto plc.

According to a statement from Rio Tinto, the world's third-largest miner by market capitalization, the 57.7 percent stake will change hands for $373 million, most probably within the next four to six months.

The deal comes as Anglo American Plc also agreed to sell its 16.8 percent holding in Palabora to the consortium for around $103 million, bringing the consortium's stake in Palabora to 74.5 percent.

The consortium is composed of the Industrial Development Corporation of South Africa Ltd, which accounts for 20 percent, Hebei Iron and Steel with 35 percent, and two other Chinese companies, General Nice Development Ltd holding 25 percent and Tewoo Group Co Ltd, with 20 percent.

As the largest copper producer in South Africa, Palabora's main asset is a copper mine in the nation's Limpopo Province, which also produces vermiculite and magnetite.

Its annual refined copper output is around 80,000 metric tons.

Rio Tinto said Palabora's copper assets did not fit with its development strategy.

"Palabora is a good business but is no longer a natural fit within Rio Tinto's portfolio," said Guy Elliott, chief financial officer of the company.

"Selling our stake reflects Rio Tinto's policy of continually reviewing our portfolio to generate best value for shareholders."

Meanwhile, China is consuming more resources to meet the increasing demand from its economic growth.

"South Africa offers significant long-term investment opportunities," Wang Yifang, chairman of Hebei Iron and Steel Group, said in a statement.

The group, which currently has around 5 billion tons of mining resources, has worked hard in recent years to expand its upstream mining businesses.

As its mining projects start to come onstream in coming years, its annual mining capacity will reach around 35 million tons by the end of 2015.

South Africa will be an important supplier of iron ore and other mining resources to China in the future, said Zhang Tieshan, an analyst from steel information provider Mysteel.com.

South Africa is currently the third-largest iron ore exporter to China, following Australia and Brazil, he said.

"According to the China Iron and Steel Association, China's steel industry will expand its overseas mining assets to around 50 percent of its total resources in future," he said.

According to the statement, the deal needs to be approved by South African and Chinese regulators.

Zhang said it should be a successful transaction and a profitable deal due to the participation of Chinese private capital.

Privately owned General Nice is China's largest coke exporter and coking coal importer with annual revenue of around 100 billion yuan ($15.8 billion), according to the company.

"Private companies closely evaluate the profitability of acquisitions to ensure the value of the deal since they cannot cope with high investment risks," Zhang said.