AFP: China’s Sinosteel set to snap up Australian miner Midwest
Midwest is an apt name for a project: It is in the midwest region and a long way from the coast. Sinosteel has come in and decided that they are going to become an iron ore operator in Australia. They’re late to the game, so rather than taking a joint venture on Hope Downs or something really brilliant 3-4 years ago, they are going for an all-cash takeover of Midwest at extremely high prices. On top of that, they are now looking at getting Murchison, or enough of Murchison to combine forces with Midwest and build a real force in iron ore.
Let’s make some assumptions. The first one is that there is enough ore in both projects to support 50 million tones per year for 20 years, or 1 billion tonnes of reserves, or 1.4 billion tonnes of resources. The second assumption is that the Australian government is going to like this closed loop with Chinese ownership. Once you make these two assumptions, you can then attach a price tag to all this, and the answer you get is very, very high ore prices sustained for a very, very long time.
The Chinese always need to be a second bidder. (Murchison/Mitsubishi was the first.) That way they can reduce loss of face if the price crashes and this deal turns out to be a huge mistake. On the other hand, maybe the price of fines is going to stay at $70 per tonne for the next 20 years. I would love to see the math behind this bid and what fines price they need to make it work and what capital are they estimating they will spend.
The icing on the cake is that the Midwest owners are playing every game in the book on the wording of their agreeing to the offer (see this article in the Australian). For example, the board agreed to the offer, but not the major shareholders who happen to be on the board. This all gets very confusing, but it’s oh so very interesting to watch.
Pass me the popcorn, or the rice bowl, please, and shush. The movie is starting.
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