Steel bars being unloaded for trading at a market in Nantong, Jiangsu province. [China Daily]

Shandong Iron & Steel Group on Tuesday said it will pay US$1.5 billion for a 25 percent stake in African Minerals' iron ore project in Sierra Leone to bolster raw material supplies.

London-listed African Minerals announced on Tuesday that it has sealed a second investment deal with Shandong Steel, China's fifth-largest steel mill by output, for the Tonkolili project in Sierra Leone. Under the deal Shandong will also buy 10 million tons of iron ore every year at discounted prices.

"The strategic investment will help us accelerate the development of Tonkolili," Frank Timis, executive chairman of African Minerals, said in a statement.

African Minerals already has a tie up with China Railway Material (CRM) and is expected to deliver 8 million tons of iron ore next year. It secured a deal in April to sell CRM a 12.5 percent stake for $280 million to help fund the first stage of the Tonkolili project, as well as an offtake agreement for future iron ore output.

The deal with Shandong will also help the company fund the Tonkolili capacity expansion to 10 million tons a year from 8 million tons.

Timis told China Daily in June that African Minerals was in talks with several Chinese companies to raise $5 billion for expanding its annual capacity to 45 million tons.

African Minerals last year said it has defined magnetite iron ore reserves of 10.5 billion tons with 29 percent ore content and 8 million tons of hematitie iron ore deposits.

Timis said the company plans to ship the entire 10.5 billion tons of iron ore deposits to China.

As a leading steel producer, Shandong Steel had started to look for overseas resources earlier this year and in March it signed agreements with Shandong-based Xinwen Mining Group and Hong Kong-based Honbridge Holdings to develop an iron ore project in Brazil.

The Brazil-based SAM iron ore project has reserves of 6.2 billion tons of hematitie iron ore. Many Chinese companies have been stepping up investments in overseas iron ore assets to diversify supplies and cut reliance on the three top miners.

Meanwhile, Baoshan Iron & Steel Co, the biggest publicly traded Chinese steelmaker, cut prices of products for August amid weakening demand from makers of automobiles and appliances.