Tony Poli’s climb back to billionaire status is off to bitter-sweet start with an initial $100 million boost courtesy of a hostile takeover bid from a Chinese partner in the Australian iron ore company he founded, Aquila Resources.
Baosteel, one of the biggest steel makers in China, boosted Poli’s fortune to around $400 million after surprising the Australian businessman with a bid pitched at a seemingly generous $3.16 a share, 39% above Aquila’s last sale.
Six years ago, Poli’s 29% stake in Aquila was valued at close to $1.1 billion (See: Shoots in a Forrest Shade), but that was at a time of high iron ore prices and hope that the company’s West Pilbara Iron Ore project in Western Australia would quickly join the boom in supplying China with up to 30 million tons-a-year of the steel-making raw material.
Falling Prices Have Not Helped
Progress on the project has been slow and not aided by land access issues and a fall in the iron ore price from as high as $160-a-ton to recent sales at around $105/t.
West Pilbara has also been held back by a complex ownership structure which sees Aquila with a 50% stake and the other 50% shared by the private resource investment company, American Metal & Coal International and the Korean steel maker, Posco.
Ironically the mining process, when started, could be the easiest part of West Pilbara with ore needing to be railed, on a line yet to be built, and exported through a port, which is also yet to be built, at a site called Anketell Point, adjacent to the Cape Lambert operations of the Anglo Australian mining giant, Rio Tinto.
Breaking A Logjam
Years of delay have finally become too much for Baosteel which already owns a 19% stake in Aquila.
In an unusual move for a Chinese company it has teamed up with an Australian rail operator, Aurizon, to make what is effectively a joint venture bid to break a logjam.
The involvement of Aurizon is an indication of Baosteel’s determination to efficiently manage the transport economics of a bulk material, something that has tripped other Chinese companies trying to work in the vast distances and high costs of the Australian resources sector.
There are other interesting features in the Baosteel bid, which values Aquila at $1.3 billion, include the timing in the iron ore price cycle which has been trending down for more than a year thanks to abundant supply which is tipped to enter a period of surplus after a decade in deficit.
Breaking An Oligopoly
If the takeover bid succeeds Baosteel faces a possible $6 billion capital cost for mine, rail and port development and while ore exports are unlikely this side of 2020 the bid cost plus development cost is a guide to the determination of the Chinese steel company to control its own mines in Australia rather than rely on the oligopoly of BHP Billiton, Rio Tinto and Fortescue Metals.
For Poli, an accountant turned mining project investor, the challenge now is to decide whether $400 million is a prize worth taking, or whether he can push Baosteel to boost its bid.
Any increase might not get him back into the billionaires club, but membership of the half-billion club would still be something to brag about.