September 08, 2008

Wulanhaote seeking development opportunities

Inner Mongolia based Wulanhaote Iron and Steel Co Ltd announced that it is seeking to further develop its business and upgrade its technical capabilities through a stake transfer. Mr Wang an official with the transaction center involved in the Wugang Steel project told Interfax that through such investor restructuring, Wugang Steel hopes to upgrade its technical capabilities, optimize its products and further develop iron ore resources in Inner Mongolia's Xing'an League as well as Russia and Mongolia.

Mr Wang added that "Due to high steel product prices and a strong steel market, Wugang Steel is in a favorable operating position at the moment. The company's cash flow accounts for up to 30% of its total assets and though its net assets are currently being evaluated, they are expected to sit somewhere between CNY 500 million and CNY 600 million (USD 66.66 million and USD 79.99 million)."

Mr Wang added that "Several steel mills have already expressed interest in becoming involved in Wugang Steel's restructuring, yet it is still too early to reveal their names. Steel mills that lack iron ore resources could be interested, as they could gain access to possible mineral deposits in the region. At the same time, steel mills that are seeking to increase their own steelmaking capacity could also be interested, as government restrictions currently prevent them from developing completely new steelmaking projects."

According to Mr Wang, Wugang Steel could potentially expand its annual steel production capacity up to 1 million tonnes after the restructuring and may expand its product portfolio from low end products to also include cold rolled or even special steel products.

At the end of June 2007, Wugang Steel's net assets had a book value of CNY 403.76 million (USD 53.83 million). When questioned as to whether or not Baotou Iron and Steel Group is a prospective investor, Mr Wang said that "Baotou Steel Group approached Wugang Steel about a potential acquisition at one stage, but later pulled out. This was because Wugang Steel was not integral to Baotou Steel's long term development plans and the company's operations are located quite far away from Baotou Steel's own operations."

Wugang Steel is focused on producing construction products, such as rod and reinforced steel and is capable of producing 400,000 tonnes of steel products and 300,000 tonnes of cement each year. In contrast, Baotou Iron and Steel Group focus mainly on high end products such as steel plates, pipes and profiles.