(Yicai Global) Dec. 7 -- Qingdao East Steel Tower has paid 20 times the value of a non-operating mining company in order to consolidate phosphate ore resources for the Chinese steel structure maker’s lucrative fertilizer business.

East Steel Tower will pay CNY281 million (USD40 million) to acquire a 72 percent stake in Diyin Mining, a company which has had no revenue since 2012 and has net assets of only CNY14 million (USD2 million), the Qingdao, eastern Shandong province-based firm said on Dec. 5.

Diyin Mining used to own phosphate and pyrite prospecting rights in southwestern Yunnan province, but these rights expired in 2018. East Steel Tower has applied to authorities for the renewal of the prospecting rights but there is no guarantee that it will obtain the license and if it does, it could take some time, it said.

However, Diyin Mining’s ore resources in the mining area are plentiful and of outstanding quality, East Steel Tower’s company secretary said on a investor platform yesterday. The Kunming-based firm has 306 million tons of ore reserves, offering significant development prospects and potential returns.

Fertilizer has become East Steel Tower’s biggest earner, since the company entered the potash field through an acquisition in 2016. In the first half, revenue from its fertilizer business accounted for 51.5 percent of total earnings, at CNY996 million (USD142.5 million), it said.

Although East Steel Tower said the acquisition was not of a related party, the two parties share a shareholder. Zhao Sijian, who held a 3.9 percent stake in East Steel Tower through a company he owns as of Sept. 30, is also a stakeholder in Diyin Mining. And the mining firm once provided a guarantee for a CNY576 million (USD82.5 million) loan to Zhao’s son and wife, according to financial news site Jiemian.

East Steel Tower’s share price [SHE:002545] was trading down 1.2 percent at CNY9.19 (USD1.30) as of 2 p.m. China time today.

Editor: Kim Taylor