Investors remained at first unconvinced as the irrepressible chairman of Fortescue Metals Group, Andrew Forrest, moved to play down recent market concern regarding the viability of the company’s proposed $1.85 billion Pilbara iron ore project.
Investors remained at first unconvinced as the irrepressible chairman of Fortescue Metals Group, Andrew Forrest, moved to play down recent market concern regarding the viability of the company’s proposed $1.85 billion Pilbara iron ore project.
During an international teleconference on Tuesday, Mr Forrest told reporters: “We are not concerned that the project has been placed in any uncertainty by CMC [China Metallurgical Construction].”
Investors in FMG were sent scrambling last week after comments by China Metallurgical Construction president Shen Heting carried in the Australian Financial Review, which cast doubt over the strength of FMG’s sales contracts with Chinese steel mills and questioned FMG’s resources.
FMG went into damage control over the Easter long weekend, calling a trading halt, but not before shares in the company plunged 25 per cent from $5.05 to $3.77 a share.
The drama potentially pushes FMG into much wider drama – the sensitive question of bilateral trade – as existing iron producers’ price demands place strains on the Australian-Chinese relationship at a time when a free trade agreement is being mooted.
While Mr Forrest remained upbeat during the conference, a release by FMG to the Australian Stock Exchange, which not only contained a detailed response to CMC’s claims but also the contractual arrangement between FMG and CMC, did little to appease investors.
FMG’s share price improved momentarily to $3.88 before closing at $3.70 on Tuesday, down seven cents.
In the announcement, Fortescue said the company was confident all pre-conditions for implementation of the construction agreement with CMC, including proof of iron ore resources, had been satisfied.
However, while it said it was ready to implement the agreement with CMC, it had also started talks with several alternative construction and financing groups regarding its project, including Leighton, Grant Samuel and Citigroup.
FMG tried to link CMC’s unfavorable comments to the Australian media as a negotiation strategy to purchase a significant equity interest in FMG’s project.
FMG said the potential sale of a joint venture interest in FMG’s Christmas Creek project had apparently been viewed unfavourably by CMC, which perhaps considered it had private negotiation rights.
“Fortescue has not granted such rights to any party,” the statement said.
FMG said that while it had been in negotiations with CMC in regards to acquiring a significant equity participation in the project, the Chinese company had purported to link its performance under the construction agreement with its purchase of an equity interest.
“While the company values its relationship with its Chinese business partners and is receptive to potential ways to strengthen that relationship, [FMG] does not agree that CMC’s obligations under its construction agreement are in any way conditional upon obtaining an equity interest in Fortescue,” the announcement said.
Mr Forrest told journalists Citigroup had been engaged about one month ago to conduct an international tender for the potential sale of an interest in the company’s flagship Christmas Creek project.
A spokesperson for Trade Minister Mark Vaile said he was unable to comment on the issue because the minister was in China.
He said it was usually the trade minister’s policy to not get involved in commercial negotiations. However, Mr Vaile recently met with Chinese officials who were concerned about a recent 71.5 per cent price rise in iron ore prices, which major producers such as Rio Tinto and CRVD have secured.
