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BHP clinches $9bn China deal

By Geoff Hiscock, CNN Asia Business Editor

Goodyear says the $9 billion deal will underpin Australia-China trade ties.
Goodyear says the $9 billion deal will underpin Australia-China trade ties.

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SYDNEY, Australia (CNN) -- Anglo-Australian resources giant BHP Billiton has clinched its biggest deal yet with China, committing to a joint venture with four Chinese steel mills that will see iron ore sales of $9 billion over the next 25 years.

The iron ore shipments, of about 12 million tonnes a year, will come from BHP Billiton's Jimblebar mine, near Mount Newman in Western Australia.

As part of the deal, the four Chinese mills will take a 40 percent stake in a sub-lease over the Jimblebar mine.

BHP Billiton, the world's biggest diversified miner, said Monday it planned to enter into a joint venture known as Wheelarra with Wuhan Iron and Steel, Maanshan Iron and Steel, Jiangsu Shagang Group and Tangshan Iron and Steel.

It said it would immediately begin shipping an additional four to six million tonnes of iron ore a year to the Chinese mills, approximately doubling its total sales to these customers in 2004.

China has become a huge customer for BHP Billiton in recent years, with the country's 8 percent-plus economic growth -- and higher rates in sectors such as automotive -- driving demand for Australian iron ore, copper, coal and nickel.

When CEO Chip Goodyear released the company's interim results on February 18, he said China contributed $1.1 billion towards total first-half revenue of $10.9 billion, almost equalling its previous full-year contribution.

Goodyear said then that China's growth was driving a recovery in other Asian economies, and he saw no slowdown in product demand.

On Monday, Goodyear said BHP Billiton was pleased to be part of a unique venture that would see, for the first time, a partnership with a group of Chinese steelmakers to ensure a stable, long-term supply of iron ore to their operations.

"The Wheelarra Joint Venture will underpin a major export agreement between Australia and China and will cement an ongoing economic partnership between BHP Billiton as a leading supplier of raw materials and China as a major industrial nation," Goodyear said in a statement released to the Australian Stock Exchange.

The agreement is expected to be formalized in Australia soon.

"We expect the relationship between China and BHP Billiton will provide further opportunities for our other businesses, notably metallurgical coal and manganese," Goodyear said.

BHP Billiton will retain a 51 percent interest in the venture, with Japanese partners CI Minerals Australia and Mitsui Iron Ore Corporation taking stakes of 4.8 percent and 4.2 percent respectively.

Shares in BHP Billiton are 0.9 percent higher at A$12.37 in early afternoon trade.

On February 18, BHP Billiton reported its 2003-04 first-half profit jumped 30 percent to $1.2 billion, driven by surging sales in China and rising metals prices. (Full story)

The result, which was at the top of analysts' expectations, was helped by a big jump in contributions from base metals and stainless steel materials.

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