Fortescue Metals Group has warned it could take at least a $US171 million ($A264 million) hit from suspended shipping contracts but says talks with Chinese entities for equity investment and a hybrid funding package are progressing.
Fortescue Metals Group has warned it could take at least a $US171 million ($A264 million) hit from suspended shipping contracts but says talks with Chinese entities for equity investment and a hybrid funding package are progressing.
In December last year, FMG suspended 10 long-term shipping contracts on the back of a slump in ship charter rates which led to customers taking on shipping themselves to save money.
Two of the bigger contracts with shipping company Bocimar International have been resolved after FMG agreed to form a shipping joint venture and issue $US50 million worth of shares.
Today FMG said eight contracts are in either litigation or arbitration processes in the UK, with the total amount of claims currently at $US30 million, "which is expected to increase".
"Until either suspension is lifted or a resolution is determined through the courts or be negotiated settlement, the claims will aggregate in value each month," FMG said.
"Notwithstanding the inherent uncertainty in quantifying potential exposure relating to the out of the money shipping contracts, Fortescue has calculated a potential damages estimate to the company of $US171 million.
"This covers all of the unresolved suspended and terminated contracts and a number of existing time charter agreements that remain active."
One arbitration hearing is currently listed for June this year.
Additionally, FMG said a ship owner is disputing the termination of a time charter deal and has launched arbitration proceedings in the UK and filed action in the US.
FMG said the owner is claiming some $US100 million in the UK and a further $US130 million in the US.
Meantime, FMG said it was in "advanced negotiation" with Chinese steel maker Hunan Valin Iron and Steel for an ordinary equity investment.
It also said it was in talks with sovereign wealth fund China Investment Corp regarding a hybrid funding package for its ambitious expansion program.
FMG said a range of alternatives were being considered including an institutional placement, joint ventures or direct investment.
FMG said the discussions were continuing.
There had been "very strong interest to invest in FMG from China and others", it said.
Reports from earlier in the week said FMG was considering raising about $1 billion from Hunan Valin, which is wholly owned by the Hunan provincial government and associated with the world's largest steelmaker ArcelorMittal.
Hunan Valin is also reportedly considering an investment of up to $3 billion in FMG, which analysts say would fund the miner's production expansion to 80 million tonnes per annum.
FMG entered a "strategic cooperative alliance" with Hunan Valin in late 2008.
Additionally, FMG has started mining at its second mine, Christmas Creek, which is 55 kilometres east of the company's first operation Cloudbreak.
Initially, ore mined from Christmas Creek will be transported by road train to Cloudbreak after FMG last year suspended work on the rail line connecting the two deposits.
NRW Holdings had held the contract.
"Longer term it is planned that a rail spur line will be completed from Cloudbreak to Christmas Creek and the mine will become part of the integrated port, rail, mine system," FMG said.
Shares in FMG have been placed in a trading halt pending the outcome of Chinese investment talks, and last traded at $2.83.