A consortium that includes South Korea's biggest steel maker is buying a
$1.1 billion stake in Montreal's ArcelorMittal Mines Canada Inc., the
latest sign of international enthusiasm for Canada's resource sector.
A person familiar with the deal said South Korea's POSCO is
"one of the more important players" in the consortium, which also
includes Taiwan's China
Steel Corp. The consortium is taking a 15% stake in ArcelorMittal Mines
-- the second time in as many years that POSCO has bought into a
Canadian mining firm.
While Prime Minister Stephen Harper clamped down on foreign
acquisition rules in December, it is expected that the minority-stake
investment is among the types of transactions he was hoping to encourage
in order to fund the expansion of Canadian businesses.
Paul Boothe, a past Industry Canada senior associate deputy
minister, said that in the case of a resource-sector portfolio
investment such as this, "the administration of the Investment Canada
Act appears unchanged," meaning such a deal should not face any harsh
setbacks in the form of an economic review.
ArcelorMittal Mines Canada, among the country's leading
suppliers of iron ore for steel markets, would increase POSCO's access
to its essential commodity. The Montreal company, which has two large
open-pit mines in Quebec, says it produces about 15 million metric
tonnes of iron ore concentrate annually, as well as nine million tons of
iron oxide pellets.
Highly indebted parent company ArcelorMittal, the world's
largest steel maker, has been struggling with weak steel prices, and cut
its dividend by 73% last fall to 20 cents a share. The miner also
reduced its 70% stake in the massive Mary River Arctic iron ore project
to 50% in December shortly after it was approved by Ottawa.
ArcelorMittal Mines Canada has been mulling the sale of a
minority stake since October, and reports in early December indicated
that POSCO was negotiating for it. A spokesperson for Seoul-based POSCO
did not immediately return a request for comment.
POSCO has a history of interest in Canadian resources, having
spent $181 million in 2011 for a 20% stake in Fortune Minerals Ltd.'s
British Columbia-based Mount Klappan coal project, much of which went to
developing the mine.
The federal government has the option to review the deal under
the national security provisions of the Investment Canada Act, but a
source familiar with such acquisitions said that this is unlikely.
Industry Canada officials did not immediately return requests for
comment. "As a country, we need foreign investment to develop our
resources," said Wenran Jiang, an Alberta-based professor and consultant
who advises the provincial government on energy transactions with
Chinese state-owned enterprises.
When the federal government allowed CNOOC Ltd. to take over
Nexen Inc. in December, it simultaneously barred further foreign SOE
takeovers in the oil sands. While Mr. Jiang feels that minority
investments by SOEs are still encouraged, he points to the lack of
clarity in the new rules, which don't have such provisions for
industries outside the oil sands. "The government is basically trying to
make policy on the go," Mr. Jiang said.