Wuhan Iron and Steel will pay C$120 million (US$121.5 million) for Canadian iron ore assets.

Wuhan Steel, known as WISCO, has reached an agreement with Adriana Resources Inc to acquire 60 percent in a joint venture which will develop Adriana's Lac Otelnuk and December Lake iron ore properties in Quebec in Canada.

WISCO will also receive a 19.9 percent stake in Adriana under a private placement, the Canadian firm said after the close of the Toronto market on Monday.

"WISCO's technical and financial strength will result in accelerating the development of the Lac Otelnuk project," President and CEO Allen J. Palmiere said in a statement. "We believe that Lac Otelnuk has the potential to be one of the largest iron ore mines in the world."

Chinese steel makers, the world's largest iron ore buyer, are investing overseas to secure future supplies and enhance their negotiating power. Analysts have forecast higher iron ore prices this year on supply concerns.

UBS estimates higher costs may push up China's benchmark hot-rolled steel coil prices by 8 percent this year, but mills will still be unable to pass on the rising costs.

"Costs could be even higher for Chinese mills on talk India may hike export duty on iron ore and on Australia's devastating floods which curb coking coal supply," UBS analyst Hubert Tang said.