BAOSTEEL Group Corp will buy a 15 percent stake in Australian iron ore and coal miner Aquila Resources Ltd for A$285.6 million (US$240 million) to increase supply of its key raw material, the Chinese steel maker said yesterday.

Baosteel also agreed to help Aquila obtain low-cost funding from Chinese financiers for the miner's major projects.

Shanghai-based Baosteel is among many Chinese companies seeking to expand and diversify their access to overseas resources to help meet demand at home.

The deal comes as Chinese steel makers and Australian iron ore producers remain at odds over pricing for this year's iron ore shipments -- long a source of contention.

The agreement is evidence of China's strategy to undercut the monopoly in global iron ore supply by investing in smaller miners outside the big three, Vale, Rio Tinto and BHP Billiton.

China this month agreed to arrange US$6 billion in cheap loans to Australia's Fortescue Metals Group Ltd, partly owned by a Chinese mill, as part of a deal in which China secured the lowest ore prices negotiated this year.

Baosteel will pay A$6.50 per share in a placement by Aquila of up to 43.95 million shares, or 15 percent of expanded capital, the Perth-based company said.

Baosteel Vice President Dai Zhihao will join Aquila's board.

Chinese funding will help the prospector, which is not yet in production, to fast-track development of ore and coal mines and transport infrastructure.

Aquila plans to start producing 30 to 40 million tons of iron ore annually in 2013 at West Pilbara in northwest Australia. The firm also has a small iron ore mine in South Africa, which is expected to generate 2 million to 3 million tons a year from 2012.

"The size is not significant, but Baosteel has to consider resource supply for the long term," said China Securities analyst Wang Zhe. China plans to import about 500 million tons of iron ore this year.

Baosteel said it values the growth potential of Aquila's assets, and the two companies will cooperate in mineral exploration.

The deal is subject to regulatory approvals in both countries.