BEIJING - Wuhan Iron and Steel (Group) Corp (WISCO) on Thursday signed an initial non-binding agreement for $800 million with Australian miner Riversdale Mining Ltd to develop a coking coal project in Mozambique.

Under the deal WISCO will acquire a 40 percent stake in the Tete province, Mozambique-based Zambeze Coal project valued at around $2 billion.

The Chinese steel mill will also purchase an 8 percent stake in the Sydney-based miner for A$10 per share.

Riversdale shares jumped by 7.7 percent and closed at A$11.35 on Thursday in Sydney after it announced the deal on its website.

Under the initial agreement, WISCO will have the right to purchase at least 40 percent of the coking coal produced from Zambeze, and at least 10 percent of the coal produced from the Benga project adjacent to Zambeze, Riversdale said in the statement.

"The project has the potential to become an important source of coking coal for China and it is based in a region that we recognize to be strategically significant for our future goals. Mozambique is an attractive investment location and has the potential to be a significant source of coking coal," Kuang Zhongxiang, general manager of WISCO International Resources Development and Investment Co said in the statement.

WISCO spokesman Bai Fang said he had no comments on the deal when contacted by China Daily. The agreement "needs regulatory approvals as well as other necessary steps to be completed," Bai was quoted by Bloomberg as saying on Thursday.

WISCO is a state-controlled steel giant based in Hubei province with an annual production capacity of around 40 million tons.

China is among the largest consumers of coking coal, an important raw material for steel manufacture, and accounts for 50 percent of the world's total consumption of the commodity. The country imported 34.4 million tons of coking coal last year.

"China will see an increasing shortage of coking coal supplies in line with its economic growth. WISCO's current move is, therefore a strategic one," said Xu Xiangchun, chief analyst at Beijing-based consulting firm Mysteel.com.

He said WISCO's overseas expansion has been aggressive in the past two years compared with other major domestic competitors.

The steel giant in April said it had teamed up with a Brazilian company to build a steel mill in Brazil that is expected to start operations in three years.

Shares of Wuhan Iron and Steel Co, WISCO's listed arm, edged down by 0.87 percent to close at 4.58 yuan on Thursday.

China Daily

(China Daily 06/25/2010 page13)