Tonghua Iron & Steel Co, the largest steelmaker in China's Jilin Province, bought a 9.9 percent stake in Australian iron ore explorer IMX Resources NL and will buy all the output from its Cairn Hill project.

Tonghua agreed to buy 16.4 million shares for 85 cents each, or AU$14 million (US$12.3 million), Perth-based IMX said today in a statement to the Australian Stock Exchange. The money will be used to develop Cairn Hill in South Australia state, it said.

China's mills have been funding iron ore companies in Australia as they seek to reduce reliance on Rio Tinto Group and BHP Billiton Ltd, the world's second and third-largest producers of the key steelmaking ingredient. The first shipment from IMX's project is scheduled for the fourth quarter of 2008.

Tonghua agreed to buy as much as 1.4 million metric tons of ore a year from the initial project for three years, IMX said. The sales accord with Tonghua is the Chinese company's first entry into Australia, IMX said.

Tonghua will build a new plant in China to process the ore, which also contains copper and gold, it said.