Grange sets up deal 'made in heaven'

The deal involves Grange issuing 380 million shares to acquire the Chinese-controlled operator of Tasmania's Savage River iron ore pellet operation, Australian Bulk Minerals.

Grange shareholders will hold 26.1% of the enlarged group while ABM shareholders get 73.9%. The split reflects Southdown's status as a development project while Savage River is expected to pump out earnings before tax, interest and depreciation of $80-90million in the December half thanks to boom prices for iron ore pellets.

Savage River has been around for more than 30 years and ownership has changed many times, but it has never been in locally listed hands.

China's third-biggest steel producer, Jiangsu Shagang, will emerge with 45.3% of the enlarged group - one of the reasons why the deal is subject to Chinese and Australian foreign investment clearance. But unlike other acquisitions by Chinese interests in the resource sector, clearance is not expected to be a touchy issue because Shagang is not state-owned.

And from the Australian perspective, the combination will have a greater chance of securing financing for Southdown.

The position of ABM's other big shareholders in the merged group would be the Chinese trader RGL (13.3%), the Hong Kong trader Pacific Minerals (8%) and the British-based trader Stemcor (7.4%). Rio Tinto will own 5.2%, a legacy of an earlier scrip deal on the Southdown tenements.

Grange managing director Russell Clark said that the deal was six months in the making and was a "marriage made in heaven". It combined a producing magnetite pellet operation (Savage River) with a magnetite development project (Southdown) that "together will produce strong cash flows well into the future".

Grange shares closed 1 higher at $1.90.