Fortescue Metals
Fortescue Metals is an ASX 50 company that has defined about 4.5 billion tonnes of Resources of Iron Ore, including 1.625 billion tonnes of Reserves. Fortescue is focused on cementing its position as the "new force in iron ore." Initial production will be 55 million tonnes of iron ore per annum and market driven expansion will occur as required. This initial tonnage has sold out and agreements exist for up to 50 million tonnes per annum of expansion tonnage. With reserves defined from less than 10 per cent of its 69,000 square kilometres of Pilbara tenements, Fortescue is well-positioned to take advantage of the current 'golden age' for iron ore.
Hunan Valin buys 16.5 percent stake in Fortescue Metals
Fortescue, Australia's third-largest iron ore miner, also agreed today to quadruple its iron ore sales to Hunan Valin, which is now set to become its second-largest shareholder. Subject to production expansions, Fortescue will increase annual supply to Hunan Valin’s subsidiary Xiangtan Steel, from one to four million tonnes from 2010.
Fortescue will sell A$558m (US$361.4m) in new shares to Valin, with Valin buying 225m new shares at A$2.48 each. Valin will also buy 275m existing shares from American shareholder Harbinger Capital. Valin will hold a total 16.5 percent stake when the purchases are complete. Andrew Forrest, CEO and founder, remains the largest shareholder with 35 percent, while Hunan Valin chairman Li Xiaowei will join Fortescue’s board. A ‘standstill agreement’ now prevents Valin raising its stake above 17.5 percent.
The purchase is an example of Chinese companies gaining access to Australian minerals in an environment of falling stock prices and debt difficulties. However, like Chinese investments in Oz Minerals and Rio Tinto, the stake will need approval from Canberra’s Foreign Investment Review Board.
With high operating expenses and slumping iron ore prices, Fortescue has been in need of capital to compensate for disrupted cash flow and to keep operations running. Fortescue’s shares have slid 60 percent in the last year amidst the downturn in commodities and concern over its debt financing.
Hunan Valin shares slid 0.03 percent on the news of the purchase. Shares in Fortescue, suspended on Monday before the announcement, last traded at A$2.38, giving a market value for the company of A$7.95bn. In December 2008, the company held A$440m in cash, with a debt of A$3.14bn. Company assets were A$5.18bn in June last year.
Fortescue said it was also negotiating a hybrid funding package with the sovereign wealth fund China Investment Corporation (CIC). CIC is believed to be considering an even larger investment to help the miner reduce its debt.
Register here to be notified of Proactiveinvestors One2One Forums.
Other Fortescue Metals articles
-
13/11/09 Fortescue Metals unveils concept for new mine, new rail and new port
-
13/10/09 Fortescue Metals Group - Pilbara production above target
-
14/07/09 Fortescue Metals puts its iron ore production where its mouth is
Other Fortescue Metals news
-
24/02/10 Fortescue Metals postpones iron ore mine construction until 2013
-
30/09/09 Fortescue Metals Group and China working co-operatively
-
17/08/09 Fortescue Metals nails iron ore deal with Chinese steel mills
-
13/07/09 Fortescue Metals tops iron ore output estimates for June quarter
-
19/02/09 China sovereign fund in talks with Fortescue Metals
-
04/02/09 Fortescue restructures shipping contract with Bocimar
-
08/01/09 Fortescue Metals ships 15 Millionth Tonne
-
05/12/08 Fortescue wants buyers to freight ore
-
01/12/08 Fortescue Metals - Takeover or Short covering?
-
21/11/08 Fortescue's Forrest upbeat on China iron ore demand '09