PERTH (miningweekly.com) – Chinese steel giant Baosteel and Australian freight operator Aurizon have made a A$1.42-billion play for ASX-listed Aquila Resources.

Baosteel Resources chairperson Zhihao Dai said on Monday that the A$3.40-a-share offer provided Aquila shareholders an opportunity to realise certain value for their holding in the company, at a 38% premium to the current market prices.

“The acquisition of Aquila is in line with Baosteel Resources' strategy of building a leading global steel and resources business through the development of the West Pilbara iron-ore project, and the Eagle Downs hard coking coal project.”

He pointed out that the all-cash offer would also relieve Aquila shareholders from the risk of funding the company’s development projects, which would require substantial capital to reach production.

The Stage 1 West Pilbara iron-ore operation would require a capital investment of A$5.7-billion to deliver about 30-million tonnes a year of iron-ore, over a 15-year mine life.

The Eagle Downs project would require about A$1.25-billion to develop a 4.5-million-tonne-a-year coking coal project. Aquila estimated that the Eagle Downs project would have a mine life of about 47 years.

The Eagle Downs project is half held by Brazilian iron-ore major Vale, and project completion was flagged for the first half of 2017.

If Aquila shareholders fully accepted the takeover offer, Aurizon would end up with a 15% shareholding in Aquila, while Baosteel would own the balance. If only between 50% and 90% of shareholders accept the offer, Aurizon would own a 10% shareholding in the takeover target, with Baosteel retaining the remaining shareholding.

Baosteel currently has a near 20% interest in the takeover target.

Aquila executive chairperson Tony Poli told shareholders on Monday that the company would form an independent board subcommittee and has appointed  financial and legal advisers to consider the offer.

He advised shareholders not to take any action until the Aquila board could make a recommendation.