Chinese firm buys stake in Australia's Fortescue Metals

Australia's Fortescue Metals confirmed Wednesday that China's Hunan Valin Iron and Steel Group had agreed to invest more than one billion dollars (650 million US) in the company.

Fortescue said that Valin would end up with a 16.5 percent stake in the iron ore miner, the latest move by a state-owned Chinese firm into Australia's resources sector.

Under the deal, Valin will subscribe to 225 million new Fortescue shares at 2.48 dollars per shares, making a total of 558 million dollars.

It will also buy 275 million existing shares from an institutional investor, representing another 778 million dollars at Fortescue's last quoted stock price of 2.83 dollars.

Fortescue chief executive Andrew Forrest said the capital injection would help his company achieve its ambition to more than double its iron ore output to 120 million tonnes a year.

"Our ability to establish a long-term partnership with a key participant in China's growing steel industry is compelling," he said.

Valin chairman Li Xiaowei will receive a seat on the board as part of the deal.

However, Fortescue said it was mindful of sensitivities in Australia about Beijing's spending spree in the country's resources sector and had included a clause preventing Valin's shareholding from exceeding 17.5 percent.

"This agreement has been carefully structured from the outset to satisfy both the requirements and intent of Australia's foreign investment regulations, while providing Fortescue with access to additional capital," Forrest said.

Earlier this month, China's Minmetals offered 2.6 billion Australian dollars to take over debt-laden OZ Minerals.

The proposed deal came days after China's state-owned aluminium firm Chinalco said it was putting 19.5 billion US dollars into another troubled Australian mining giant, Rio Tinto, to increase its stake to 19 percent.

Before the global economic downturn, China's virtually unquenchable demand for mineral resources helped drive a decade-long boom in Australia, and China remains the vital market for Australia's resources sector.

But Australian politicians have raised concerns about China's state-owned entities buying into Australia's resource sector.

Fortescue holds rights to a massive 40,000 square kilometres (15,444 square miles) of Western Australia's resource-laden Pilbara -- an area larger than Taiwan.

Forrest has moved to position Forestcue as the "third force" in Australian iron ore, competing with giants BHP Billiton and Rio Tinto to shuttle millions of tonnes to Asia.

The company's success briefly made Forrest Australia's richest man last year but the value of his stake in Fortescue has tumbled as falling demand for iron ore has sent its share price down.

The company's shares were in a trading halt Wednesday.

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