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Sinosteel launches hostile bid for WA company -

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Sinosteel launches hostile bid for WA company

The World Today - Friday, 14 March , 2008 12:18:00

Reporter: Brigid Glanville

ELEANOR HALL: A Chinese steel company backed by the government in Beijing has launched a hostile
takeover bid for a billion dollar Australian mining business.

Sinosteel is offering $1.2-billion for iron ore company Midwest Corporation and the Chinese
company's directors say they have approval from Australia's Foreign Investment Review Board for the
deal.

But if successful, the takeover would give the Chinese Government significant influence in the West
Australian minerals sector, and there's plenty of opposition.

Brigid Glanville has been looking at the deal and joins us now.

So Brigid, what is in this for Sinosteel?

BRIGID GLANVILLE: Eleanor, as you mentioned Sinosteel is the Chinese Government backed company and
it wants Australia's large iron ore deposit in around the midwest region of Western Australia,
which is east of Geraldton.

Now obviously as you know, the main iron ore deposit in Western Australia is in the north around
the Pilbara, so that's owned by BHP and Rio Tinto. But this deposit around the midwest region of
Western Australia is also a significant deposit.

There's two companies - this is a bit of background - but there's two companies operating in that
area, Midwest Corporation and Murchison Metals. And just as background, last month a deal
collapsed, another takeover deal collapsed between Murchison Metals, which is owned by the
Japanese, trying to buy Midwest Corporation, which is owned by the Chinese.

And the reason they're trying to buy each other out is because they have to build some significant
infrastructure in that region, a rail line, to get the iron ore from the mine to Geraldton.

So, Sinosteel has come in, made an offer of $5.60 a share, which is 35 per cent higher than what
Midwest was last traded at the close of the market yesterday. And it's come in and it's thought,
analysts say, that Sinosteel which currently owns 19.89 per cent of Midwest, will take over Midwest
and then will probably eventually try and take over Murchison, so it has the main iron ore deposit
in the midwest region of WA.

ELEANOR HALL: What are analysts saying about the deal?

BRIGID GLANVILLE: Look, analysts ... JPMorgan is advising Sinosteel and a number of analysts have
raised questions about it, but Alan Young from JPMorgan, we spoke to him this morning and this is
what he had to say about the deal.

ALAN YOUNG: Well, we hope it's not hostile, we hope that the directors see value in it and
recommend it. We obviously think there's a good chance of success or we wouldn't have launched the
offer.

ELEANOR HALL: That's Alan Young from JPMorgan.

So Brigid, how has Midwest reacted?

BRIGID GLANVILLE: Midwest hasn't spoken, but it has released a statement this morning saying that
it's received an unsolicited offer and it has advised shareholders not to take any action.

And this morning just after that statement was released to the stock exchange Eleanor, Midwest's
share price rose 31 per cent to $5.45. That's still short of the offer, the bid offer of $5.60.

ELEANOR HALL: If the Foreign Investment Review Board has already given its approval, is this a done
deal?

BRIGID GLANVILLE: Now we've rung the Foreign Investment Review Board this morning. Nobody has
returned calls from The World Today. Sinosteel has told us that the Foreign Investment Review Board
has approved the deal or has approved them to buy more than the 19.9 per cent stake.

Now, the Foreign Investment Review Board gives the recommendation to the Treasurer Wayne Swan. He
then can go back and raise questions and raise issues with the deal. This is an emerging issue for
the government, the Chinese Government wanting to come into a buy a publicly listed Australian
company. With the Chinese having a lot of money, it's going to be a thing that the Government is
now going to have to look at, and it does raise a number of issues that the Treasurer and Prime
Minister will have to deal with.

Wayne Swan last month said that overseas government-backed funds looking to invest in Australian
assets will be screened to ensure their objectives are in the national interest.

ELEANOR HALL: Has the Treasurer said anything about this deal publicly yet?

BRIGID GLANVILLE: He hasn't. We've also made calls to the Treasurer this morning and they're
looking into it and will get back to us. And look Eleanor, it must be noted that there have been a
number of overseas lifelines given to Australian companies.

Citigroup received a lifeline from the Abu Dhabi investment corporation, and UBS from the Singapore
Government. You've got the Singapore Government at the moment, has raised interest, wants to buy
part ... a high stake in childcare centre ABC Learning. However, these are just lifelines. This
deal will give Sinosteel the complete company.

ELEANOR HALL: And Midwest doesn't seem to want this lifeline.

BRIGID GLANVILLE: And that remains to be seen and to see what shareholders will do today.

ELEANOR HALL: Brigid Glanville, thank you.