BEIJING - Chinese iron ore trader Haoning Group is in talks to take a stake in Australian miner Brockman Resources Ltd., following its purchase this month of a Handymax ship, as it seeks to stablize raw materials and shipping costs, a top executive said late on Monday.

Haoning, China's second largest private iron ore trader, is joining the ranks of private firms, including Rizhao Steel, that have invested in ships over the last year to help offset volatile freight rates.

It bought the 45,000 ton ship for $54 million this month from shipping firm Norden, in a transaction 70 percent financed by ANZ Bank, the company announced on Monday. It has entered a temporary chartering arrangement with Chinese shipping giant COSCO to guarantee the loans.

"Actually, shipping costs can exceed the cost of the cargo. So to control costs, it's important to control shipping," said managing director Andrew Zhou who is from Tangshan, home to many of China's private steel mills.

"With our own ship and our own sources of raw materials, we are better placed to ride out any industry restructuring."

Founded in 2005 as China's iron ore imports surged, Haoning last year handled 6 million tons of iron ore and had revenues of 2.7 billion yuan ($385.7 million).

Flush with cash, it is trying to lock in supply before the boom times end and margins disappear.

It is in talks with Australian miners, among them Brockman, to buy a stake of about 10 percent and ensure raw materials for its sales in China, Zhou said.

Brockman owns the Marillana project in Australia's iron rich Pilbara region, and plans to begin iron ore production of 10 million tons a year in 2009.

Haoning already has a stake in an Australian coking coal project that is due to begin producing in the next year or two.

"The road that Haoning is taking is that being taken by many bigger state-owned enterprises; diversifying and integrating operations by investing upstream," said Wayne Mo, general manager for ANZ in Beijing.

Beijing has encouraged Chinese resources firms to invest in mines in Australia, where laws are stable and deposits are relatively rich. But many such purchases have gone through lengthy negotiation or even fallen through, often due to higher labour and environmental costs in Australia than in developing countries where Chinese entrepreneurs have made quick deals.

"What the Chinese are ultimately looking for is security of supply for raw materials," Gavin Wendy, mining analyst for Fat Prophets in Sydney, said in an earlier interview.

Haoning expects to make back the cost of the ship in about three years, and then use it for another 10, Zhou said. It intends to buy three more ships.

"Spot costs are one of the biggest problems for China's enterprises, especially private enterprises. If you are always a trading company, the risk is enormous," Zhou said.

"But if you are able to invest in anything that makes revenues more stable - let's say, raw materials or transport - you can evolve from being merely a trader to being a resources company." - Reuters