POSCO in $404 Million Macarthur Deal, Rivals Arcelor

Global steel giants ArcelorMittal and POSCO have separately bought stakes in Macarthur Coal, raising the possibility of a bidding war for the Australian mining company as steelmakers rush to secure stable coal supplies.


South Korea's POSCO, the world's No.4 steel firm, said on Monday it had agreed to buy a 10 percent stake in Macarthur Coal from the Australian group's founder and major shareholder Ken Talbot for A$20 per share, paying a total of A$420 million (US$404.2 million).

The price is a 11 percent premium to Macarthur's closing share price of A$18 on Friday.

The deal follows news at the weekend that the world's top steel maker ArcelorMittal raised its stake in Macarthur to 19.9 percent by buying 5 percent from Talbot Group Holdings, also at A$20 per share, bringing its total investment in Macarthur to A$843 million.

Ken Talbot, the founder and a major shareholder of Macarthur, quit the board last week in a move viewed as pushing the $3.7 billion company close closer to a possible sale. Talbot's latest share sales will reduce his stake to around 4.76 percent.

"The acquisition ... is in line with ArcelorMittal's strategy of securing its supply of raw materials, in this case through the acquisition of a stake in a leading supplier of low volatile pulverized coal injection coal," the Luxembourg-headquartered firm said.

POSCO said the purpose of its stake purchase was not for investment gains but also to secure a stable supply of raw materials. It added that it had no immediate plans to raise its investment in Macarthur.

Steel makers are looking to protect themselves against soaring raw material prices by building stakes in mining firms. Earlier this year POSCO agreed a near-doubling in coking coal prices with an Australian supplier.

Under Australian takeover rules, a shareholder wanting more than 19.9 percent of a firm must make a full takeover offer.

Macarthur, which supplies steel mills with more than a third of the world's pulverized coal, has seen its shares more than double this year to A$20.73 on surging demand for coal from China and India and bubbling takeover talk.

Analysts have said there had been high expectations Arcelor would make a full takeover offer for Macarthur, which helped push its shares to successive record highs in past weeks.

Chinese state-owned CITIC Resources Holdings, which has a 17.66 percent in Macarthur, said this month it may sell its stake, raising speculation for a full takeover bid for Macarthur.

CITIC, which is 11 percent owned by Singapore government investment arm Temasek Holdings, trimmed its stake in Macarthur earlier this year from 19.9 percent as it expands into oil sector, with a $1 billion acquisition of oil assets in Kazakhstan.

Red Hot Coal

Soaring coal prices, driven by tight supply and voracious demand from China and India, have put Australia's mining sector in play amid a global resources grab.

POSCO, which agreed earlier this year to pay Brazilian miner Vale 65 percent more for its iron ore, has yet to conclude a similar deal with Australian miners, from whom it secures around two-thirds of its iron ore requirements.

Despite sharp increases in raw material costs, steel firms are struggling to fully pass on cost rises as global economic growth slows down, threatening to curb demand for steel products.

POSCO announced last week a plan to raise steel prices by up to 21 percent from July, bringing this year's total price increase to 63 percent.

POSCO wants to boost self-sufficiency in raw materials, such as iron ore and coking coal, to 30 percent from around 20 percent by 2012 by investing in global mining projects.

Arcelor said its latest deal was subject to approval from Australia's Foreign Investment Review Board, while POSCO said the deal was conditional on approval from its board at a meeting scheduled next month.