Wuhan Iron & Steel Group, (600005.SH) China's third-largest steel maker by output, is in discussions with Canada-listed Adriana Resources Inc. (ADI.V) on a stake in an iron-ore project in Quebec, the state-run China Daily reported Friday.

"We have reached a preliminary agreement with Adriana Resources to jointly develop the iron ore project," the newspaper cited an unnamed company executive as saying.

A spokeswoman for Adriana couldn't immediately be reached.

Wuhan Iron's reported interest in Toronto-based Adriana Resources comes at a time when some of the world's largest steel producers are showing an interest in Canadian resource companies developing or producing key raw materials for steel production. This strategy allows steel producers to either hedge their production costs and/or secure a key supply of important raw materials. Earlier this month, Luxembourg-based ArcelorMittal (MT), the world's largest steel producer, agreed to acquire Toronto-based Baffinland Iron Mines Corp. (BIM.T), for C$433 million to reduce its dependence on outside supplies of iron ore.

Baffinland is developing its Mary River iron ore project on Canada's Baffin Island in the northern territory of Nunavut. Baffinland says the Mary River property has 365 million tons of proven and probable reserves with a grade of 64.7% iron and 500 million tons of additional resources.

Located in Lac Otelnuk, Quebec, Adriana's project contains more than 6 billion tons of ore reserves with ore content of 29%, it said.

Wuhan Iron also plans to organize a group of Chinese companies to jointly develop an iron-ore project in Cameroon, and the China State Construction Engineering Corp. has expressed interest, the newspaper cited the executive as saying.

Adriana Resources is a junior exploration-stage company, engaged in the acquisition and exploration of resource properties including the Lac Otelnuk project and the development of an iron-ore port facility in Brazil.

Newspaper Website: www.chinadaily.com.cn

-By Ben Dummett, Dow Jones Newswires; ben.dummett@dowjones.com; 416-306-2024

(-Yue Li contributed to this article; Dow Jones Newswires; (8621) 6120 1200; yue.li@dowjones.com_
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