Chinese Steelmaker Considers Canadian Iron-Ore Deal – by Alistair MacDonald Nisha Gopalan and Gillian Tan (Wall Street Journal – September 26, 2013)

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Wuhan Iron & Steel Is Possible Bidder for Rio Tinto Assets

Wuhan Iron & Steel (Group) Corp. is in a thinning field of bidders for Rio Tinto RIO.LN -2.80% PLC’s Canadian iron-ore assets, raising the possibility it would be the first Chinese state-owned firm to make a large Canadian acquisition since a controversial oil-sands deal last year.

The Chinese steel giant is looking to buy, potentially with partners, the 59% stake in Iron Ore Co. of Canada that Rio Tinto put up for sale in March, according to people familiar with the matter. Wuhan’s interest underscores China’s continued appetite for metal assets, including iron ore, around the world.

In Canada, such a deal would be the first test of new rules Prime Minister Stephen Harper’s government applied to state-owned bidders in the wake of Cnooc Ltd.’s 0883.HK +1.52% $15.1 billion takeover of Canadian oil-sands operator Nexen Inc. Though Canada approved the Cnooc-Nexen tie-up, it effectively blocked state-owned companies from acquiring oil-sands assets in the future, and signaled that attempts by state-owned firms to seek control of other Canadian assets would face higher scrutiny.

Earlier this year, analysts estimated that Rio Tinto’s stake in Iron Ore of Canada was worth around $4 billion, valuing the entire business at roughly $7 billion. Currently, any bid for a Canadian company, or a controlling stake in one, exceeding 344 million Canadian dollars ($333.6 million) has to be judged on whether it produces a “net benefit” to the Canadian economy. This year, Chinese companies have made a handful of investments below that threshold, but none above.

Some bankers say state-owned firms in China and elsewhere have been put off from bidding for Canadian assets by Ottawa’s tightened rules and by the furor that surrounded Cnooc’s acquisition and the roughly $5.2 billion acquisition of Progress Energy Resources Corp. by Malaysia’s Petroliam Nasional Bhd that occurred around the same time.

But there is Chinese interest in Rio Tinto’s Canadian iron-ore assets, people familiar with the matter say. China is the world’s largest steel-producing country and depends on imported ore for 60% of its steelmaking. Hebei Iron & Steel Co. 000709.SZ 0.00% mulled making a bid at one stage, according to people familiar with the matter. And China Minmetals Corp. said earlier this year that it was interested in bidding.

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