Fortescue secures offtake agreement with Wuhan

East Perth-based Fortescue Metals Group Ltd has secured an iron ore offtake agreement with China's Wuhan Iron & Steel Group for around two million tonnes per year.

The full text of a company announcement is pasted below

Fortescue Metals Group Ltd is pleased to advise a further iron ore offtake agreement has been signed with a major Chinese steel mill.

Wuhan Iron & Steel Group through its trading arm International Economic & Trading Corporation, has contracted 4.4 per cent of Fortescue's initial planned production of 45 million tonnes per annum up to a maximum off-take of 2 Mt/a. The offtake covers all of Fortescue's product range being both high grade lump and fines and super value fines ores.

The offtake agreement also contemplates additional sales tonnages of up to a further 5 million tonnes per annum should Fortescue expand its production base beyond the initial 45 Mt/a level. Such expansion by Fortescue would only be done when timing was appropriate, consents and approvals had been received and financing was agreed.

The agreement term is 10 years with pricing based on the industry standard of annual benchmark price setting with adjustments made for product type and volumes.

As background, Wisco produced 20 million tonnes of steel in 2005 and is forecast to reach 30 Mt of steel production by 2010. It currently ranks as the third largest steel producer in China and the 16th largest in the world.

Fortescue and Wisco reached this agreement following the successful testing of Fortescue's material at Wisco's facilities. Both parties envisage the signing of this agreement paves the way for a mutually beneficial relationship over the longer term.