News

• Aurizon and Baosteel today announced an intention to make a joint bid to acquire all of the shares in ASX-listed Aquila Resources Limited by way of an off-market takeover for $3.40 in cash per share, with Aurizon acquiring up to 15% of Aquila and Baosteel the remainder if the offer is fully accepted.
• Aurizon’s objective is to achieve majority ownership, development and operation of multi-user port & rail infrastructure underpinning the development of the West Pilbara Iron Ore Project (WPIOP).
• This significant Australian-Chinese co-investment focusses on the delivery of new rail and port infrastructure for the WPIOP – this will support Baosteel's (one of China’s leading iron and steel producers) and China's growing demand for iron ore.

Aurizon Holdings Limited (ASX:AZJ) and Baosteel Resources International Co. Ltd today announced their intention to make a joint bid for ASX listed Aquila Resources Limited for $3.40 in cash per share, details of which are attached and set out in the parties’ joint bid announcement released today.

The transaction will result in Aurizon acquiring 15% of Aquila if the offer is successful in acquiring 100% of Aquila (total cash consideration of $1,136¹ million; Aurizon share - $211 million²). Aurizon will acquire 10% of Aquila if the offer closes with the bidders owning between 50% and 90% of Aquila shares (total cash consideration of up to $995³ million; Aurizon share - $140 million). Baosteel will acquire the remainder of the acceptances under the offer.

Since privatisation in 2010, Aurizon has had a strong focus on diversifying its commodity profile, including growing its business in iron ore, Australia’s largest export commodity. It has stated its intention to develop multi-user, integrated rail and port infrastructure to service mid-tier and junior miners in the Pilbara that currently have stranded deposits and limited infrastructure solutions.

Participation in the bid provides a step towards Aurizon potentially participating in the development of infrastructure in the West Pilbara, as detailed in the Investor Briefing released to the ASX today. Baosteel is partnering with Aurizon for Aurizon's expertise in Australian bulk haulage solutions to deliver the rail and port component of the overall project.

There are a number of commercial risks associated with the process of achieving an integrated rail and port solution for a new iron ore province in the West Pilbara. Aurizon has assessed these risks in the context of the potential commercial benefits of the project. Further details are provided in the Investor Briefing.

Joint Offer

The off-market takeover bid aims to acquire all Aquila shares at $3.40 per share. This represents a 38.8% premium to Aquila’s most recent closing price of A$2.45 per share and premiums of 32.3%, 45.0% and 52.7% over the volume weighted average price of Aquila over the past 3, 6 and 12 months respectively.

Baosteel and its related bodies corporate currently hold 19.8% of the shares in Aquila.

The bid is subject to a minimum acceptance condition of 50% (calculated on a fully diluted basis)⁴, approval by the Foreign Investment Review Board and the other conditions set out in the joint bid announcement.

WPIOP Infrastructure

The WPIOP, one of Australia’s most substantial greenfield iron ore projects with over 2.2bt of total resource, (including WPIOP and wider Pilbara tenements), is proposed to be developed by the Australian Premium Iron Joint Venture (APIJV). APIJV is an unincorporated joint venture between Aquila’s wholly-owned subsidiary Aquila Steel (50% participating interest) and AMCI (IO) Pty Ltd (50% participating interest), an entity ultimately owned by AMCI International AG (AMCI) (51%) and POSCO (49%)⁵.

Aurizon and Baosteel have entered into agreements⁶ in relation to the proposed development of infrastructure for the WPIOP. If the bid is successful, the commercial arrangements between Aurizon and Baosteel provide for restructuring of the board of Aquila. Following the restructure of the board it is intended that the parties enter into discussions with the APIJV with the aim of progressing a range of activities in connection with infrastructure development and infrastructure services, including appropriate studies, developing tariffs and subsequently agreeing the terms of an infrastructure development transaction.

Importantly the parties have agreed a pathway that sees Aurizon granted a minimum 12 month exclusivity period to work with Baosteel, and if they become parties to the agreement, Aquila and the APIJV with the aim of securing the right to develop a rail and port solution.

The parties contemplate that they will work towards an infrastructure transaction that could see the restructure of the assets of the APIJV into an infrastructure vehicle holding rail and port assets, to be majority owned by Aurizon, and a separate mining vehicle holding mine assets and associated reserves. It is Aurizon’s long-term intention, following the successful development of the WPIOP rail and port infrastructure, to divest its shareholding in Aquila.

The proposed infrastructure development project currently envisages the construction of a 432 kilometre greenfield heavy haul rail line from the APIJV mines to a new deep-water port to be constructed at Anketell Point on WA’s Pilbara coast, near Dampier.

The new mine, rail and port system is currently planned to have an initial capacity of 40 million tonnes per annum of direct shipping iron ore (DSO). Aurizon considers that the system will have the potential to increase capacity to accommodate increased volumes from the WPIOP and other miners. A number of State and Federal environmental approvals for the mines, rail line and port have been granted.

Aurizon’s ultimate involvement in the infrastructure development is dependent on (amongst other things) the completion of appropriate studies, the APIJV participants agreeing an appropriate infrastructure transaction, and satisfying the other conditions of the transaction documents. Aurizon and Baosteel are aiming to have first shipment of ore from the project to commence in 2017/18.

Any rail and port infrastructure development by Aurizon will be subject to, amongst other things, a Final Investment Decision by Aurizon and will occur only after detailed planning and feasibility studies, concurrent development of the mine and entry into appropriate take or pay contracts to support the tonnage profile for viable rail and port infrastructure. Further details are included in the Investor Briefing released today.​

Strategic fit of investment

The proposal represents an investment in a nation building project by Australia's largest rail freight operator, Aurizon and one of China’s largest iron and steel producers, Baosteel that will create Australian jobs, boost national exports and deliver to government significant royalty revenue.

“This proposal represents an unprecedented opportunity to co-develop world-class rail and port infrastructure in Australia, utilising Chinese and Australian capital, to deliver much needed Australian commodities to China,” said Managing Director & CEO of Aurizon, Lance Hockridge.

“There is an excellent strategic fit for both companies. It would allow Aurizon to capitalise on expertise as a builder and operator of nationally significant export supply chains, matched with the ongoing investment in Australian resources by one of China's largest iron and steel producers.”

“This project has potential to deliver new independent, multi-user rail and port infrastructure that would create new options for mid-tier miners and increase competition for bulk logistics delivery in the Pilbara.”

Baosteel Resources International Co. Ltd's Chairman Mr. Zhihao Dai said: “Aurizon is a highly credible Australian infrastructure provider with the expertise, resources and capital backing to bring this exciting project to fruition.”

“Baosteel is one of China’s leading iron and steel producers. Having first invested in Australia in 2002 we remain committed to a strong, secure long-term relationship with Aurizon and in investment in Australia.”

Aurizon has engaged Satori Investments and UBS as its financial advisers and Ashurst as its legal adviser in relation to the bid.​

ENDS

For more information:
John Knowles - INVESTORS
Mark Hairsine - MEDIA +61 419 893 491 +61 418 877 574

1. Fully diluted basis excluding approximately 19.8% of Aquila ordinary shares on issue (held by Baosteel and its related body corporate, Fortune BS Company Pte Ltd).
2. Assuming acceptance into the Offer of all Aquila Shares that could potentially be issued upon the exercise of Aquila Options, and upon the vesting of Aquila Performance Rights and Aquila Share Appreciation Rights
3. Fully diluted basis excluding approximately 19.8% of Aquila ordinary shares on issue (held by Baosteel and its related body corporate, Fortune BS Company Pte Ltd).
4. The condition is set out in paragraph (a) of annexure 1 to the joint bid announcement.
5. The information in this announcement concerning Aquila (including API, the API JV and WPIOP) is based on only publicly available information. Aurizon does not represent or warrant (expressly or impliedly) that any such information is accurate or complete.
6. The agreements include an Infrastructure Framework Agreement. The agreements will be annexed to Aurizon's Form 603 - Notice of Initial Substantial Holder to be issued today in respect of Aquila.