Hebei Iron & Steel Group Enters into Agreement to Acquire Common Share of Alderon Iron Ore Corp.
Hebei Iron & Steel Group Co., Ltd. (“Hebei”) announced today that it has agreed to acquire 25,808,305 common shares (the “Share”) of Alderon Iron Ore Corp (“Alderon”) representing 19.9% of the issued and outstanding common shares at a price per Share of CAD3.42 or a total price of CAD88,332,804 by way of a private placement (“Private Placement”) pursuant to the terms of a subscription agreement between Hebei and Alderon dated April 13, 2012 (the “Subscription Agreement”). The subscription price per share represents 0.6% discount to the last close price per share of Alderon on TSX. Upon closing of the Private Placement, Hebei will have the right to appoint two directors to the board of Alderon.
On closing of the Private Placement, Hebei and Alderon will also enter into a joint venture arrangement pursuant to which Hebei will invest CAD105,667,196 and has the right to acquire a 25% interest in Alderon's principal asset referred to as the "Kami Project". Hebei agrees to use its best efforts to assist in obtaining project debt financing for the Kami Project from financial institutions.
Upon acquisition of the 25% interest in the project, Hebei will purchase upon the commencement of commercial production 60% of the actual annual production from the Kami Project up to a maximum of 4.8 million tonnes of the first 8.0 million tonnes of iron ore concentrate produced annually at the Kami Project. The price paid by Hebei will be based on the Platts Iron Ore Index (“Platts Price”), less a discount equal to 5% of such quoted price. Hebei will also have the option to purchase additional tonnages at a price equal to the Platts Price, without any such discount.
Hebei continues to remain optimistic about the outlook for the Chinese steel industry given the continued growth in China. It believes that while Chinese steel production may grow at a more moderate rate than in the past, based on much larger economy of the country and the huge steel production capacity, China's iron ore demand will still be significant. Given the shortage of high quality, late development stage iron ore projects, Hebei believes that the Kami Project represents a compelling investment opportunity. As the broader market is currently taking a more cautious approach to forecast iron ore demand, Hebei believes that now is the ideal time to invest in upstream assets like Alderon and Kami Project.
Mr. Wang Yifang, Chairman of Hebei, said “Hebei is pleased to create a long standing partnership with Alderon through this strategic investment. I believe this is an important transaction in the push of China’s iron and steel enterprises to invest into overseas mining assets. In addition to the potentially attractive investment returns, Hebei is able to lock up a long term supply of high-quality iron ores, to help improve our operational performance and ensure our long-term, sustainable growth.”
Mr. Mark J. Morabito, Chairman of Alderon, said “Alderon is delighted to build this new partnership with Hebei, China’s largest steel group and the second largest steel group globally. China continues to be one of the strongest and most dynamic economies globally with significant expertise in the iron ore and steel industry. Alderon now has both the capital and the China market access to build a world-class company.”
The Private Placement is subject to the approvals of the various government entities in China and the approvals of the Toronto Stock Exchange and the NYSE AMEX. Bank of America Merrill Lynch acted as exclusive financial advisor to Hebei. Davies Ward Phillips & Wineberg LLP and Haiwen & Partners acted as legal advisors to Hebei.
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Hebei was established on June 30, 2008 through merger of former Tangshan Iron & Steel Group and Handan Iron & Steel Group. Hebei is China’s largest steel producer and the second largest in the world. Hebei ranks #279 among Fortune Global 500 in 2011. Hebei has a production capacity of 50 million tonnes. It produced 44.8 million tonnes of steel and generated RMB227 billion of revenue in 2010. It controls 13 large operations across a number of sub-sectors of steel production, iron ore mining, trading and logistics.
Alderon is a leading Canadian iron ore development company with offices in Vancouver, Toronto, Montreal and St. John’s. Alderon is listed on TSX (ticker “ADV”) and NYSE AMEX (ticker “AXX”). The 100% owned Kami Project is located within Canada’s premier iron ore district and is surrounded by four producing iron ore mines. The Alderon team is comprised of skilled professionals with significant iron ore expertise to advance Kami towards production.