January 08,2010

Chinese Tycoon Emerges to Grab Chilean Iron Ore Mine

By CSC staff, Shanghai

Li Zihao, a low-profile entrepreneur and president of Rixin Development Company, of Shunde, Guangdong, announced over Christmas that all legal formalities for acquiring a 70+% stake in a Chilean iron ore project by his company were completed in October. Li's company gained control of mineral rights of three mines with reserves of 3-5 billion

tons for a reported 13 billion yuan.


With yet another new round of iron ore supply negotiations around the corner, Li says: "We want to break the monopoly of the international iron ore giants."


Li's involvement in mining is being supported by three major central enterprises. China Minmetals Zhuhai Corporation is set to market the ore, COSCO Logistics will transport it, and China Communications Construction Company (CCCC) will assist in building railway lines and terminal facilities.


Insiders view this acquisition as important. 2010 Price negotiations with the three iron ore supply giants will begin soon. Minmetals claims the iron FOB price for this project will be 30% below that of Vale's offering to the Asian market this year. Recently, Wuhan Iron and Steel and a Venezuelan iron ore mining company reached an agreement on a long-term price, and invested $400 million in MMX, a subsidiary of the Brazilian EBX Group.


Li Zihao states the annual supply from Chile to the Chinese market between 2010 to 2012 will reach 30 million tons or more and no less than 120 million tons after 2014. The three mines are located 1,000 kilometers north of Chile's capital of Santiago, covering a total area of 40 square kilometers.


In an interview with 21 Century Business Herald, Li clearly remembers the first time he saw the mine. "At first sight, I was shocked. It's a big iron lump. When I looked down from 200 meters, lots of ore was sticking out, and it is very easy for mining." The mines are 50 kilometers from the coastline, where the harbor is sheltered and water 25-30 meters deep in off-shore areas. In 2008, Li's company spent millions of dollars in assessing the mines. Reports show that reserves of No. 1 and No. 2 mines total 3 billion tons, with No. 3 mine holding more than 2 billion tons.


In Shunde, on south China's Pearl River Delta, Rixin Development is next to unknown. Founded in 1996 with registered capital of just over 50 million yuan, more than 20 employees work in a commercial office building. Li Zihao graduated from high school in 1980 and has worked in the state-owned Textile Import & Export Company. In 1995, he founded his own company. At present, his company works a gold mine in Guangxi, molybdenum ore and coal mines in Guizhou, and coal mines in Australia.


In 1998, Rixin entered the automobile industry by acquiring an automobile factory in Chengdu for 24 million yuan. In 2008, the company acquired Jiangsu Mudan Automobile, listed on Hong Kong's GEM. At the end of 2006, Li, with the help of Chinese friends, went to Chile alone and visited and negotiated with more than 100 mining enterprises, identifying his acquisition target in early 2007. "We have talked with them for more than a year, and in 2008 we expanded the results and finally got a 76% share of three mines and finished all legal formalities," he says.


Li Zihao says the purchase price for the mines is in a different world compared to the sums Baosteel and Wuhan Iron and Steel are paying for mines abroad. "They spend money like they are buying Italian furniture, while our prices are as low as buying Chinese lumber."


The acquisition will be finished through Rixin Development Holdings in Hong Kong. A certain percentage of the funds will be paid down and the rest gradually paid off when the project achieves sufficient size. Part of the first sum is to come from shareholders of the Hong Kong company.


The 13 billion yuan acquisition fund of is only a part of the total investment. The smooth production of the Chilean iron ore requires huge investment--for railway and port terminal, power plants and reactor mines, and other facilities. Li says that such projects are to be assumed by CCCC.

At present, Chile Yilong Mining, Ltd., a wholly owned Hong Kong Rixin Development subsidiary, is in full swing in preliminaries such as mining applications and is plotting the layout of the Chinese market. According to the projections, Yilong will supply 3 million tons of iron ore to domestic iron and steel enterprises through China Minmetals in 2010. Minmetals will likely cooperate with Rixin for shares of iron ore.

COSCO Logistics will take care of the transport of the Chilean ore. The cooperation between Rixin Development and CCCC is through cross-shareholding. CCCC will soon send people to Chile to prepare for the port and railway construction.

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