Iron ore developer Fortescue Metals Group has signed a $A536 million equity deal with a New York group after breaking off talks with Noble Group Ltd.
Iron ore developer Fortescue Metals Group has signed a $A536 million equity deal with a New York group after breaking off talks with Noble Group Ltd.
Leucadia National Corporation has agreed to pay $402 million for a placement of 26.4 million Fortescue shares, or nearly 10 per cent of the company.
The holding company, which invests in diverse businesses across the US, will also invest a further $134 million under a loan note with a term of 13 years from signing.
The $US400 million deal is conditional on Fortescue raising the $2 billion of debt required to develop its iron ore mine in Western Australia's Pilbara region by the end of the year.
"The introduction of the Leucadia investment will provide the requisite equity to enable completion of Fortescue's project financing," Fortescue said.
The deal comes a day after talks with Hong Kong commodities trader Noble Group fell through.
Fortescue had been discussing equity and marketing arrangements with Noble Group, which yesterday said it would not take a flagged $361.8 million equity stake in the company.
"While discussions with Noble were productive and conducted in a highly professional manner, an agreement could not be reached," Fortescue said.
"Fortescue has chosen to pursue an alternative offer."
Fortescue shares were placed in a trading halt yesterday ahead of the investment news and last traded at $9.41.
Discussions about marketing activities between Noble and Fortescue could still be continued in the future, Fortescue said.
Noble said yesterday if a marketing agreement could be reached it would be extremely pleased.
A $US200 million facility set up in March has enabled Fortescue to start the long lead items required to keep the Pilbara iron ore project on schedule.
The company said a comprehensive financing package was expected to be in place within this quarter.
Fortescue is considering a 45 million tonne a year operation, starting up in late 2007.
The full text of Fortescue's announcement to the stock exchange is below:
Fortescue Metals Group Ltd has entered into a subscription agreement with Leucadia National Corporation for Leucadia to invest $535 million in Fortescue and its Pilbara Iron Ore and Infrastructure Project via:
- subscribing to a placement of 26.4 million ordinary shares, which will represent 9.99% of the expanded issued shares of Fortescue, for US$300 million which is equivalent to A$15.20 per share at the current exchange rate.
- investing US$100m in a 13 year unsecured subordinated loan note (4% gross revenue interest) in the project.
Fortescue chief executive Andrew Forrest said "This is a historic development for Fortescue and Australia's iron ore industry. Leucadia's investment is the best possible endorsement of Fortescue and our Pilbara project.
"Leucadia have demonstrated over the last three decades their philosophy and success in backing long term wealth generating projects and companies, and they make an ideal partner for Fortescue as we move towards production.
"The investment structure we have agreed with Leucadia minimizes dilution for existing Fortescue shareholders, whilst giving Leucadia a significant shareholding in Fortescue and access to further returns over a fixed term from the unsecured subordinated loan note.
"With only a small portion of our 33,000km of tenements explored, it was important for Fortescue to look to a structure that minimises the sale of ordinary equity in Fortescue, while giving us the necessary capital base."
The subscription for the shares and the notes is conditional on reaching financial close, being the date when Fortescue raises the requisite debt capital to finance the project. A further condition is that the terms of the debt raising must be acceptable to Leucadia and if this condition is not satisfied or waived by 31 December 2006, either party can withdraw from the agreement.
Fortescue chairman Gordon Toll said "The primary objective of the board in this equity raising process has been to get the right partner, one which will help Fortescue grow and develop in the years ahead to fulfill our ambition to be the new force in iron ore through this project and beyond. Leucadia has demonstrated it has these qualities and attributes."
A Leucadia representative will be invited to join the board upon its investment.
Leucadia is listed in the New York Stock Exchange and currently has a market capitalisation of US$5.84 billion. Leucadia is a diversified holding company engaged in a variety of businesses, including manufacturing, healthcare services, telecommunications, real estate activities, winery operations and residual banking and lending activities that are in run-off. Leucadia also owns equity interests in investment partnerships and in operating businesses, including development of a copper mine in Spain, real estate activities and property and casualty reinsurance operations.
