In another move to secure long term supply of iron ore for its steel plants, China's third-largest steel producer Wuhan Iron and Steel (Group) Co. (WISCO) reached an agreement with Brazil's Mineração e Metálicos SA (MMX), to acquire 21.52-per cent stake in the iron ore miner for $400 million.

Through the deal WISCO would become the second-biggest shareholder of MMX, which is controlled by billionaire Eike Batista. In total, MMX will issue about 167.8 million new shares including the rights of the company's minority shareholders, at a price equivalent to $3.93 per share.

WISCO also executed another deal with EBX Investimentos Ltda. (EBX), the holding company of MMX, to construct a steel plant of 5 million tonnes per annum capacity at Port do Acu in southeast Brazil. Wuhan will own 70 per cent stake in the new joint venture while EBX will hold the remaining 30 per cent.

An offtake agreement has also been signed between WISCO and MMX Sudeste, an MMX subsidiary, which provides for the supply of at least 50 per cent of the iron ore production from Serra Azul mines of MMX Sudeste. The contract will be valid for 20 years beginning April 2010.

Rio de Janeiro-based MMX consists of three iron ore mining entities: MMX Corumba and MMX Sudeste in Brazil and Minera MMX in Chile. Logistics operations are managed by another group company LLX Logistica SA.

MMX hopes to obtain funding for the steel plant from China Development Bank and Brazil's development bank BNDES. It is expected that construction of the steel plant would commence by May next year.

Chairman of EBX Group Batista said; ''This is a historic transaction that marks the largest equity investment by a Chinese industrial company in Brazil ever. This represents the beginning of a new era in the Brazil-China economic cooperation and we believe that the EBX Group will be instrumental in developing closer ties between the two growing nations.''

MMX intends to use the sale proceeds to develop its mines of MMX Sudeste, and plans to triple the company's total iron ore output to around 33 million tonnes per annum (mtpa) from the current level of about 10.8 mtpa.

WISCO president Deng Qilin commented: ''The cooperation on the project is beneficial to secure the supply of iron ore resources to WISCO, beneficial to capitalize the respective core competitive advantages from WISCO, EBX, MMX and LLX and conducive to further advance the economic and social developments of Brazil."

China, the world's largest steel producer has been on the lookout for global resources to reduce its dependence on the world's three dominant miners: Vale SA, BHP Billiton Ltd, Rio Tinto Group. The country produced 500 million tonnes of steel in 2008 and has imported over 514 million tonnes of iron ore during Jan-Oct 2009, according to China Iron and Steel Association data.

Wuhan, Hubei province-based WISCO produced about 28 million tonnes of steel in 2008.

Barely a fortnight ago, WISCO announced that it had established a long-term contract with Venezuela's Corporacion Venzolana de Guayana (CVG), the country's only iron ore miner for the supply of iron ore at a price lower than last year's long-term benchmark prices set by Japanese steel plants with the three leading suppliers.

Earlier this month, the Australian regulators approved WISCO's $247 million investment in Australia's iron ore explorer Centrex Metals. (See: Australian regulator approves China's investment in Centrex Metals) 
 
In June WISCO acquired 19.9 per cent stake in Canada's Consolidated Thompson Iron Mines Limited for $240 million.
 
Credit Suisse acted as the exclusive financial advisor for EBX Group while BNP Paribas advised WISCO on the deal.