Since Baosteel and Wuhan Iron and Steel merged on December 1, 2016, the Baowu Group was established. Prior to the merger, in 2012, the National Development and Reform Commission approved Baosteel’s plan to build a new steel project with an annual capacity of 10 million tons in Zhanjiang, Guangdong Province, and Wuhan Iron and Steel’s plan to build a similar project in Fangchenggang, Guangxi Province. As a result, iron ore resources became a prerequisite for the approval of these projects. Following preliminary work, Baosteel is currently collaborating on an iron ore project in Western Australia, while Wuhan Iron and Steel is doing the same in South Australia. Consequently, in accordance with regulations issued by the State-owned Assets Supervision and Administration Commission, Baosteel and Wuhan Iron and Steel successively commissioned Chinese appraisal agencies to conduct evaluations of their respective iron ore projects in Australia. The following is a brief comparison of the two projects.

The North Star and Glacier Valley iron ore projects in Australia, commissioned by Baosteel to Zhejiang Zhiyuan Company (the Iron Bridge project of Australia’s FMG company, in which Baosteel holds a 12% stake following the transaction), have an estimated valuation of approximately US$1.2 billion for the core project. The South Australia Iron Ore assessment project in Australia, commissioned by Wuhan Iron and Steel to Zhongqi Hua Company, has an estimated valuation of approximately AUD 1.88 billion for the core project.

According to a report in the China Metallurgical News (June 11, 2021, Page 02, Section Two), the capital valuation of the Iron Bridge Project may be revised to between 3.3 and 3.5 billion U.S. dollars. Specifically, based on the appraisal report prepared by Zhejiang Zhiyuan Company, which valued the project at 1.2 billion U.S. dollars as of the valuation base date of December 31, 2011, the value has nearly tripled over the past decade. In contrast, the Wugang South Australia Iron Ore Project, whose appraisal report was issued by Zhongqi Hua Company on the valuation base date of June 30, 2012, was valued at 1.88 billion Australian dollars. Five years later, in 2017 (according to the Zhongtonghua appraisal report, which used June 30, 2017, as the valuation base date), its value had declined to just 32.0543 million RMB. There are many reasons for these unusual circumstances. However, from the perspective of the appraisal agencies themselves, neither Zhongqi Hua in 2012 nor Zhongtonghua in 2017 had assembled the specialized team of Chinese and foreign experts that Zhejiang Zhiyuan had at the time of its assessment. Moreover, the project leaders lacked dual professional qualifications—both internationally and domestically—and thus did not possess the requisite expertise to conduct mining-related appraisals both within China and abroad.

Before 2012, for mining projects involving overseas equity swaps of a similar nature, it was sufficient for domestic comprehensive asset valuation agencies to take on the assignment. However, following the issuance at the end of 2011 by the State-owned Assets Supervision and Administration Commission (SASAC) of the “Interim Measures for the Management of State-owned Property Rights Overseas by Central Enterprises” and the “Interim Measures for the Supervision and Administration of State-owned Assets Overseas by Central Enterprises,” only valuation agencies holding qualifications for mining rights valuation were permitted to undertake valuations related to mining interests. Therefore, Baosteel Group launched a nationwide bidding process and, after careful evaluation, selected Zhejiang Zhiyuan Appraisal Company to carry out the valuation of mining-related interests. Specifically, we collaborated with Zhongtonghua Asset Appraisal Company to complete the appraisal project. The reasons why Baosteel Group chose our company that year were as follows: First, our proposal included hiring an Australian partner firm (AMC) and experts as consultants from the Australian side; second, the Australian expert we engaged was Mr. PETER STOKER, who at the time served as Chairman of the Joint Ore Reserves Committee (JORC) in Australia; third, our company already had extensive experience in overseas operations, and our Sino-foreign joint project team was among the strongest and most professional; fourth, I myself had been engaged in comparative studies of Chinese and foreign mining standards for many years and possessed an extensive international network; fifth, our international business practices were particularly thorough and well-rounded.

In 2012, our company undertook the North Star and Glacier Valley iron ore projects in Australia. This marked the first time that a Chinese-standard-based assessment was explicitly applied to an overseas mining project undertaken by China. Meanwhile, Australia’s FMG company prepared its professional report according to Australian mining standards. As a result, differences between the two countries’ standard systems created significant challenges for practitioners. Of course, these differences also extended to legal systems (civil law vs. common law) and commercial practices, among other factors. During the execution of this project by our Chinese and foreign teams, we conducted in-depth academic and technical comparative studies addressing these very differences. The findings from these studies not only ensured the high quality of the reports but also provided optimized solutions for the international cooperation between Baosteel and FMG. Moreover, these research outcomes directly led to subsequent bilateral cooperation and mutual recognition of technical standards between Chinese and Australian industry organizations. Specifically, following negotiations between the China Mining Association and the Australasian Institute of Mining and Metallurgy, the Australian side admitted Chinese senior members as full members at the end of 2013.

This case highlights the differences between institutional practice and the capabilities of investors themselves. In 2012, for the North Star and Glacier Valley iron ore projects undertaken by Baosteel Group, our firm was engaged to perform mineral rights valuation; Zhongtonghua Company then relied on our firm’s valuation conclusions to complete the equity valuation. In contrast, for the South Australia Iron Ore Project of Wugang Group, Zhongqi Hua Company handled the entire valuation process independently. Because Zhongqi Hua Company lacked the professional expertise possessed by our team, it failed to make sound judgments, indirectly causing substantial losses to Wugang Group.