TORONTO Hebei Iron & Steel Group Co. Ltd., Chinas largest steelmaker, plans to invest Canadian $194 million ($194.6 million) in Alderon Iron Ore Corp. and its Kami iron ore project in the Canadian province of Newfoundland and Labrador.
Under the terms of the deal, Hebei will acquire 19.9 percent of Alderons outstanding common shares, as well as a 25-percent interest in a newly formed limited partnership that will own the Kami project, Montreal-based Alderon said.
Hebei also has agreed to buy iron ore produced from the Kami project, Alderon said. That amounts to 60 percent of annual production from Kami, up to a maximum of 4.8 million tonnes for the first 8 million tonnes of iron ore concentrate produced from the project annually.
In addition, Heibei has agreed to help obtain financing from Chinese banks for the Kami project, Alderon said, adding that the Chinese steelmaker has the right to nominate two directors to Alderons board.
"China continues to be one of the strongest and most dynamic economies globally with significant expertise in the iron ore and steel industry," Alderon executive chairman Mark Morabito said in a statement Friday. "Alderon now has both the capital and the China market access to build a world-class company."
Alderons Kami project should give Hebei Iron & Steel access to high-quality iron ore in a strategic location, Hebei chairman Wang Yifang said in a statement. "This is an important transaction in the push of Chinas iron and steel enterprises to invest in overseas mining assets," Wang said, noting that the deal would allow his company to "lock up" a long-term supply of ore and to improve the steelmakers operational performance.
The transaction with Hebei "validates and materially derisks" the Kami project, Alderon president and chief executive officer Tayfun Eldem said. With financing from Chinas largest steelmaker and potential access to Chinese banks, he said the company was poised to become "the next significant iron ore producer in Newfoundland and Labrador."
The transaction remains subject to approvals from the Chinese government, as well as the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE) Amex.
Alderons shares, which are listed on both exchanges, jumped early Friday even as markets generally trended downward. The companys shares hit an intraday high of $3.83 each on the NYSE Amex before edging back to $3.50, up 0.6 percent from the previous day. On the TSX, Alderons shares shot as high as C$3.83 ($3.84) apiece before stepping back to C$3.50 ($3.51), up 1.7 percent vs. Thursday.