The Industrial Giant Reborn

"I am naturally very happy to cooperate with Baosteel. However, at present, the Christmas Creek iron ore has only just completed preliminary planning. According to the plan, it will take five years to increase production capacity. If it is just a willingness to cooperate, then of course it can be decided now. But the specific cooperation matters can only be discussed after production starts in Australia." Chen Zhiwen said.

Mines are also heavy industries and are no less complex than steel mills. However, Hutchison Whampoa is not directly involved at present. Instead, it is handed over to Rio Tinto. It only needs to participate in monitoring and learning. After all, it is not necessary to participate without any experience. It doesn't make much sense. We'll talk about it later when we have a bit of a foundation.

But even for the experienced Rio Tinto, it will take several years for a mine to go from nothing to being able to mine. Fortunately, the Christmas Creek iron ore deposits are shallow and easy to develop, and the transportation aspect is Basically, most of Rio Tinto’s existing facilities can be used, otherwise it will take longer.

Two months ago, Hutchison Whampoa and Rio Tinto had completed a preliminary agreement. The entire Christmas Creek iron ore mine was valued at US$2.5 billion. Rio Tinto purchased 40% of the shares for US$1 billion. Subsequently, Hutchison Whampoa used this This amount of capital was invested, and Rio Tinto invested another US$666 million into the Christmas Creek Iron Mine to complete the joint venture.

As a result, Christmas Creek Iron Mine alone has US$1.666 billion in cash, and the shares between the two parties are still 6:4. The joint venture will operate independently, so there is no need for Hutchison Hutchison to provide any separate funds, reducing financial pressure.

US$1.6 billion is also a very large number for Hutchison Whampoa. It would be a bit difficult to put it out alone. However, this is a normal figure for mining. An iron ore covering dozens of square kilometers requires Purchasing a large amount of equipment and investing in infrastructure, as well as preparing a living area for thousands of workers, is equivalent to building a town. The cost of any of these items is measured in hundreds of millions of dollars.

Only when the ore is mined and sold can we start to support the ore. Before that, we are burning money.

Even for a company like Rio Tinto, the funds used are actually loans from banks, and the mortgage is naturally the value of the iron ore in the future. Otherwise, it is unlikely that any mining giant will come up with such a large amount of funds. In fact, the same is true for oil fields. The mineral mining industry has a much higher demand for bank funds than the real estate and even shipping industries. However, the stability is relatively strong. As long as no new super mineral deposits appear in the world, there will basically be no losses. This is where banks feel more at ease.

"This is actually nothing. Our country imports various bulk commodities. If it is not an urgent purchase of spot goods, it is basically to discuss the long-term cooperation content in advance with many large foreign companies or governments. As for the price, there is no need It has been decided now that in the future, both parties will conduct annual negotiations based on international prices. Otherwise, the market price will fluctuate too much and none of us will be able to bear it." Li Ming smiled and said, "However, in theory, the price can also be locked in advance. It’s just that generally we don’t participate in this kind of futures investment.”

"I won't participate in futures, so if we cooperate, we can just renegotiate the price on an annual basis." Chen Zhiwen nodded and said, "I don't know what Baosteel's annual imported ore volume will be in the future?"

Chen Zhiwen knew that Baosteel would be the largest mainland steel plant in the future, and could even be ranked among the best in the world. However, he didn’t know what its current production capacity was. Baosteel had just completed construction last year, and it could be considered as starting trial production this year. Outsiders had no idea. What's going on inside is unclear.

"The production capacity of the first phase is estimated to be around 6 million tons. According to the plan, there will be a second phase later, but that will be at least five years later." Li Ming said.

"Then the imported iron ore must be at least 15 million tons?" Chen Zhiwen nodded. Although he doesn’t know much about the steel industry, he has a large iron ore in his hands, so he naturally has some basic understanding. Under normal circumstances, refining one ton of steel requires 2-2.5 tons of iron ore, 0.5 tons of coke and A lot of water, etc., but this is just crude steel, and more resources are needed to refine it. At the same time, the iron content of the iron ore must also be considered, so it is only a rough estimate.

"Almost, at least 1,500, and with subsequent increases in production capacity, this number will only get higher and higher," Li Ming said.

"The domestic economy will definitely get better and better in the future, and the demand for steel will inevitably get higher and higher." Chen Zhiwen said with a smile.

"I heard that the iron ore in Christmas Creek has an iron content of over 60%. Is that true?" Li Ming asked again. This was something they were more concerned about.

The reason why Baosteel's project is placed in Shanghai instead of Northeast China is mainly because the equipment imported from overseas must use high-quality iron ore. These iron ores are not currently available in China, and iron ore can only be imported from overseas. Then There is a need to build such steel plants in coastal cities.

Of course, the location of the market is also one of the factors to consider. The economies of Shanghai and its surrounding areas are very developed. In previous years, it was necessary to purchase steel from the Northeast or import it from overseas. The transportation cost of steel is very high. In the Yangtze River Delta, it is necessary to There is a large steel plant.

Therefore, when Baosteel was first built, the national department began to go overseas to find suitable suppliers and found several. However, when Hutchison Whampoa discovered a super iron ore in Australia, it still attracted great attention in China, especially after hearing that The iron content is very high.

The equipment used by Baosteel is currently the most advanced equipment in the world. It is purchased from developed countries such as Japan and Germany. The higher the quality of the iron ore used in these equipment, the lower the loss of the equipment, the greater the production capacity, and the greater the consumption. Less energy. In short, the higher the quality of the iron ore, the better. However, most of the iron ore mines in the world have signed long-term contracts with other large steel companies. It is a bit difficult for Baosteel to take away other people's shares.

"Yes, the average iron content of Christmas Creek iron ore is 56%, and the highest can reach 65%." Chen Zhiwen nodded and said.

In these iron-deficient countries in China, 30% of the iron ore has development value. However, overseas, especially in Australia, this kind of iron ore has no meaning at all and is not worth developing at all, because the cost of infrastructure makes the iron ore must be high. There is room for profit only based on the iron content, unless the iron mine is on the seaside and has a suitable port, but this is basically impossible.

It is also because of the high iron content of the Christmas Creek iron ore that Rio Tinto is willing to cooperate and is reluctant to give up.

"Perhaps, we can initially reach a basic cooperation agreement and set a transaction value as my reservation for Baosteel. How about that?" Li Ming asked.

"How much tonnage?" Chen Zhiwen asked.

"What is the annual production capacity of Christmas Creek Iron Mine in the future?" Li Ming asked again.

"Rio Tinto's current plan is to produce 20 million tons per year, but if Baosteel can win more, I can ask them to increase production capacity." Chen Zhiwen said with a smile.

The total reserves of Christmas Creek are 1.5 billion tons, but this is a theory. In fact, after developing 1 billion tons, even if the rest can be developed, the cost may be high. Unless the future iron ore price is very high, otherwise It would be enough to mine 1 billion tons of such iron ore.

Based on 20 million tons per year, this mine can operate for 50 years. The time span is very long. For many industries that make quick money, it is almost unacceptable. But this is the case in the mining industry. These companies are all century-old companies. The mines it owns will not be over-developed, and the rapid development means that more investment in transportation, reserves, development equipment, etc. is required, which is not cost-effective in the long run.

However, it is not set in stone. As long as there are customers who really place long-term orders, increasing production is not a problem at all. Even if the development ends prematurely, it will still take 20 to 30 years. With such a long time, with his capital, he will definitely continue to invest. Other mines will form a virtuous cycle. Besides, by then, he may be the major shareholder of several of the world's largest mining giants.

"If this is the case, we can lock in 5 million tons. If there is still need in the future, we can discuss it, how about it?" Li Ming said.

The demand for Baosteel in the future will definitely exceed 5 million, but whether it is from the national perspective or from Baosteel's perspective, they cannot let themselves be too dependent on one supplier. They will decide on a part first and wait until the future. .

"Okay, that's no problem." Chen Zhiwen nodded and said. From the moment the Christmas Creek Iron Mine came out, and with his own identity, supplying the newly built Baosteel was the best choice. One was short of suppliers, and the other was There is a lack of customers, and both parties will benefit from working together.

"But Mr. Chen, according to international practice, with a purchase scale of ours, there will be some discounts." Li Ming said with a smile.

"Of course, just follow international rules. Large customers also have the right to discounts." Chen Zhiwen said.

The current international iron ore market, and even the next 10 years, is basically in a relatively balanced state, which means that buyers and sellers are in a relatively equal position, and the supply and demand for iron ore are similar in quantity. There are occasional fluctuations. Although the Asian economy will develop rapidly in the next ten years, new iron ore will be mined just as fast. Only when the mainland's economy takes off and the infrastructure maniac is born, the balance of iron ore will be lost. From then on, the demand will be huge. supply, causing iron ore prices to skyrocket.

It is currently in the reciprocal stage, and iron ore has not yet formed a pattern of three giants. It is impossible for a dozen or even dozens of iron ore companies to form a monopoly. Therefore, the buyer must still be in a higher position and sign the contract. If there is a long-term contract, the seller will generally make some concessions. Otherwise, looking for multiple customers or transportation in multiple directions will also increase costs.

This is true for any industry in the world. Only oil, natural gas, and food during food shortages have absolute say. Even for Midea's game consoles, if you purchase them in large quantities through channels such as supermarkets, you will still get certain discounts.

"Okay, I hope to have more cooperation with Mr. Chen in the future." Li Ming said with a smile. As a steel factory, Baosteel will need to purchase ore from the iron mines owned by Chen Zhiwen in the future, and it will also need to sell a lot of steel to For the automobile company owned by Chen Zhiwen, you must know that one of the purposes of Baosteel's existence is to solve the problem of importing steel used in automobiles. Even the electronics company owned by Chen Zhiwen is the same. Home appliances such as TVs also need a lot of iron inside.