Chinese companies Baosteel and CITIC are poised to buy a stake in the flagging Fortescue Metals Group, according to local media, with one IHS Maritime source also saying Fortescue ore ships on order were up for sale.
Speculation has been mounting in recent days that buyers are circling iron ore juniors, including Australia’s third biggest, but heavily indebted miner, Fortescue. Yet it was not until 26 May that a report in Australian Financial Review named the two companies thought to have made submissions to Australia’s Foreign Investment Review Board (FIRB).
Industry sources told IHS Maritime on 26 May that Fortescue did not really have any other options, predicting the price of ore would drop back to USD50 a tonne this year, well down on the miner’s break-even point.
“I can’t see them repaying the debts they have without some cash injection,” he said. “It might be the only way of saving the company in the long term.”
He added that news from China was that Fortescue was looking for buyers for its eight very-large ore carriers on order from China state-owned shipyard CSSC Guangzhou Longxue Shipbuilding and Singapore listed Yangzijiang Shipbuilding.
“But I don’t know who would be in the market for big ore ships in the current market,” he said.
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Fortescue currently shoulders a USD7.2 billion debt, which it struggled to refinance in April. Fairfax media named Baosteel and CITIC as the two companies eyeing a stake in Fortescue mines, ports, and rail based on their existing relationships with the miner and industry sources.
Baosteel already has a 12% stake in Fortescue’s magnetic iron ore assets in the Pilbara (FMG Iron Ore Bridge) and was also behind plans to unlock iron ore in the West Pilbara.
CITIC had previously held discussions with Fortescue about a potential investment in its estimated USD18 billion rail and port infrastructure.
Fortescue has been coy about talk of suitors, claiming on 26 May that they knew of no approach to the FIRB and would not comment on media speculation. However, chief executive Nev Power has previously gone on record saying “a strategic investor would probably be the most appropriate partner for us”.
Andrew Forrest, founder and chair of Fortescue, has been running a media and lobbying campaign in recent weeks, demanding a government inquiry into what he alleged as deliberate oversupply by big miners BHP Billiton and Rio Tinto to drive down the price of ore and put other miners out of business, while creating a AUD20 billion state revenue gap. At the same time Forrest has been busy buying into junior miners, including Atlas Iron and a tiny Victorian gold miner, A1 Consolidated Gold.
However, this week his campaign for an industry inquiry failed at the same time China signed inked a USD4 billion expansion deal with rival iron ore producer, Brazil’s Vale. While others blamed Forrest for China looking to Brazil, Fortescue slammed the “unprecedented, intense and hysterical lobbying by the multinational mining giants”.