The deal comes a year after steel mill Jianlong Steel Holding Co abandoned its Tonghua takeover after a riot.

"We will sign the deal with Jilin provincial government before the end of the month," Shougang spokesman Zhang Wenzhe said on Wednesday. No financial details were immediately available.

Earlier reports suggested that Shougang, China's eighth largest steel mill, had reached an agreement with the State-owned Assets Supervision and Administration Commission of Jilin, the owner of Tonghua, and agreed to pay 2 billion yuan for a controlling stake.

However, the whole process was delayed following divergent views on the restructuring.

Tonghua, which has 50,000 employees, has been struggling to make profits in recent years, and was a prime target for restructuring.

Beijing-based Jianlong attempted to buy a controlling stake in Tonghua in 2005, but pulled out after learning of its heavy losses.

After years in the red, Tonghua began to make profits in June 2009, propelled by the government's four trillion yuan stimulus package, and that rebound prompted Jianlong to consider buying a controlling stake of 65 percent in July last year.

That deal failed when Tonghua workers beat to death Chen Guojun, the new general manager appointed by Jianlong.

Chen was allegedly attacked after infuriating workers by saying he would lay off most of the existing Tonghua workforce.

Industry insiders said Shougang's takeover of Tonghua is in line with its expansion strategy.

Shougang is seeking to produce 25 million tons of crude steel this year, the company said recently. It made 17.3 million tons of steel in 2009, while Tonghua Steel has an annual capacity of 6 million tons.

Shougang, which merged with three domestic steel makers last year, plans to expand its annual production capacity to 30 million tons by launching new projects and acquiring mills in Hebei, Shanxi and other provinces by 2012.

Along with the Shanxi-based Taiyuan Iron & Steel Group, Shougang plans to lead Shanxi province's 60 million tons of capacity consolidation this year.

Shougang paid 500 million yuan for a 90 percent stake in Changzhi Iron & Steel in Shanxi province last year and plans to invest 19 billion yuan over the next three years to boost its annual steel production capacity to 6 million tons.