Trading in Australian iron ore miner (and Jubak’s Pick) Fortescue Metal (FSUMF.PK) has been halted in anticipation of the release of news on Monday that the company has completed a ”commercial negotiation”.
Speculation in Australia is that the news will be that China’s sovereign wealth fund, China Investment Corp. (CIC), has decided to invest $1 billion into Fortescue. CIC, rumors go, will get convertible bonds in exchange for its cash.
The new money would go a long way toward funding Fortescue’s goal of expanding producton to an annual 95 million metric tons by sometime in 2012. Production is now running at a rate of about 35 million tons a year.
Reaching production of near 100 million tons (which would put the company a solid third among the world’s iron miners behind Vale (Vale) and BHP Billiton (BHP)) is essential for the company to reach a scale that it would let it bring down production costs to the levels now enjoyed by its bigger competitors.
Industry analsyts estimate that reaching a 95 million ton annual production rate would cost Fortescue$3 billion. Right now the company has about $650 million in cash.
From Bloomberg
China’s Fortescue Deal Seeks to Break ‘Stranglehold’ (Update1)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGYN8YKyetUQ China’s
Will you be commenting on this Mr. Jubak ?
FSUMF hasn’t really said what the deal is yet.
“The deal” will be in the financing package they put into place, how the debt is secured, how the $$ will be divvied out (Slow trickle, so that China can keep dictating price per Tonne for several years?, or will FSUMF get lump payment to project manage the expansion on their own ?)
Will China take a back seat in the expansion or will they expect to dictate how and where?
Long term it is obviously in the interest of FSUMF to have the largest buyer of Iron ore distinctly on your side, just afraid what FSUMF (And its non-secured investors) will have to give up in the process.
This is the deal FSUMF made with the Chinese
http://www.theaustralian.news.com.au/business/story/0,28124,25940013-5005200,00.html
pkehi
Seems Sino influence in the Mid West area is mounting to acquire the raw materials it needs to keep their economy humming along at the pace they need to maintain political harmony.
http://www.theaustralian.news.com.au/business/story/0,28124,25937532-36418,00.html
Although I must admit that if I wanted to stimulate interest in developing my recourses in the Mid West Australian region I would be playing the China card as hard and often as possible. What’s your take Jim, could the small Australian Mid West mining companies like Murchison Metals be future FSUMF, or is this just hype?
pk3hi
What might the deal look like ?
From an article from the sydney morning herald on April 3rd:
“Fortescue should have a stronger balance sheet soon because the Federal Government granted approval this week for a $645 million equity injection from a Chinese steelmaker, Hunan Valin Iron & Steel.
Mr Rowley said that would clear the way for Fortescue to gain access to more financing from China to fund expansion plans, possibly from China Investment Corp or China Exim Bank.
He said the structure of any deal would be restricted by the terms of its outstanding bonds, but one possibility would be for the Chinese to take a 40 per cent stake in its Solomon deposits. They would be included in an expansion of mining.
The Australian Fortescue Metals to reveal all on China financing:
FORTESCUE Metals Group is expected to release details of a multi-billion-dollar deal with China’s Export-Import Bank today that will bankroll the expansion of the company’s Pilbara operation.
http://www.theaustralian.news.com.au/story/0,,25937711-36418,00.html?from=public_rss
China freezes talks on Iron ore price:
John Garnaut, Shanghai
August 15, 2009
http://business.theage.com.au/business/china-freezes-talks-on-ore-price-20090814-el9x.html
FMG trades on the ASX, and will remain halted until further notice.
FSUMF (On the US exchanges) is more or less a tracking stock to its ASX counterpart and has not been halted in the US, only the parent company on the parent exchange is effected.
So…anyone know what actually happened? From what I can tell the FSUMF hasn’t stopped trading on Scottrade. 57,000 share traded today. Did they get the money from the Chinese? I didn’t see the stock bounce at all on the news.
Research: ANDREW Forrest’s Fortescue Metals Group is believed to be in advanced talks with major policy bank Export-Import Bank of China (Exim Bank) over a multi-billion-dollar deal to finance expansion of its Pilbara iron ore mines.
http://www.theaustralian.news.com.au/story/0,,25930548-36418,00.html?from=public_rss
Commodity speculators beware, Chinese demand may be restrained (iron Ore, Cement etc . . .)
http://www.mineweb.com/mineweb/view/mineweb/en/page39?oid=87507&sn=Detail
Fortescue Selling Ore at 20% Less Than Benchmark, JPMorgan Says
http://www.bloomberg.com/apps/news?pid=20601081&sid=aO4fZSU50EYs
Seems to be trading again- i just picked up some shares on ETrade
Thanks for the update, maybe after the news breaks into facts this Monday we can get the Jubakism of what it all really means. Thanks!
Things seem to get more and more comfortable between the Chinese and Fortescue by the minute.
“1.23 Billion Tonne Maiden Resource for Glacier Valley (Baosteel owns 35% interest in a JV arrangement, and can move to 50% with after covering basic feasibility costs for the project) This tenement is 100 Kilometers south of Herb Elliott port and 25 Kilometers east of Fortescue existing rail lines (That’s 15.5 miles of new track, track bed that would need to be laid, plus rail cars, loaders etc.. to get at it…)”
http://www.asx.com.au/asxpdf/20090729/pdf/31jsnzj18y66hg.pdf
I feel that 1 Billion is a little short of the mark, I believe we may see something considerably more (After all, what better way for China to show BHP/RIO that they are very pissed off at being left on the altar, Classic really, Jump into bed with the bad boy of the group, that’ll show ‘em. I also believe that we may see something a little more creative then convertible bonds coming out of this arrangement as A.F has made it known that he isn’t willing to dilute his 1 bill share holding (Though, at a price, I am sure he wouldn’t mind)
Of course, all of this is just spec. on my part, and as Jim says This stock is very risky bet, and “ I wouldn’t invests the kids collage funds here…”
Although with tie ups like this it seems to be getting progressively less and less risky, well, that is, except for the state of the world economy, and being so indebted to your largest customer, and worrying that if you make a wrong move the Chinese government might just grab you or your employees and charge you with stealing state secrets, The fact that A.F may yet be forcible removed as an officer of the company, current debt of 3.4? Billion, with more to be piled on very soon…..etc, etc . . .
But, it sure is a fun stock to follow!!