Any deal that recalls Citic Pacific’s disastrous Sino Iron venture will take some heat. Baosteel Resources’ A$1.1bn bid for Aquila Resources is another Chinese-Australian iron ore venture. So the comparisons will come. But it is a better deal.
Baosteel has joined forces with Aurizon, a rail freight operator, to buy the 80 per cent of Aquila the former does not own. The idea is to get control of Aquila’s 50 per cent share in the stalled West Pilbara iron ore project, although Aquila’s half-interest in Eagle Downs, a coking coal development, will not go amiss. The bid has strategic sense. A steelmaker and an experienced freighter should be good owners.
Including Aurizon, a trusted local name, is also smart. Sino Iron sprang from Chinese state-owned groups which lacked understanding of Australian conditions: that project is five times over budget. Baosteel’s offer for Aquila is aggressive. Going to shareholders over a recalcitrant board is one thing. But citing an inability to engage by yesterday when that board was notified only on Saturday is punchy. Price could be a factor – the A$3.40 a share is a decent 39 per cent premium to Friday’s close. But most analysts ascribe no value to the Pilbara project, stalled since 2012 because of partner infighting. That makes it hard to know what Baosteel should pay – even assuming it can agree with Posco, the Korean steelmaker, and AMCI, a private commodities group, the other Pilbara partners, on how to push ahead with the project.