Fortescue metals group strikes investment deal with vale

“Given Vale’s substantial debt and minimal free cash flow, it is unclear over what timeframe Vale could build an interest if the MoU was ratified,” Citi analyst Clarke Wilkins wrote in a note to clients. J gastroenterol Iron ore, Fortescue shares surge

The announcement came after iron ore surged 19 per cent overnight to $US63.74 a tonne – its highest level since June 15 last year – and a 24 per cent jump in the Fortescue share price to $3.08 on Monday. Fortescue shares opened higher on Tuesday before falling 9.4 per cent to $2.79.

FMG chief Nev Power said the MoU would allow the pair to supply an attractive and competitive new iron ore blend in China. Z gas guatemala Photo: Philip Gostelow

“We are not intending to sell part of the infrastructure assets – we did have a look at that a few years ago but we have taken that off the table and all that we have been considering have been in the mining assets,” he said.

Fortescue’s founder, chairman and major shareholder Andrew Forrest has not spoken publicly since the deal was announced, but it is believed he does not plan to reduce his 33.32 per cent stake in the company if and when Vale starts buying the stock. Gas pain New iron ore product

The aspect of the agreement that appears most likely to go ahead is the iron ore joint venture, would would see the companies sell a new iron ore product into China.

The product would be a blend of Fortescue’s Pilbara ore (which has lower iron grades and low impurity levels) and Vale’s Brazilian ore, which has a higher iron grade and higher impurities.

The companies hope the blended product would allow them to mine less attractive ores and blend them up to a marketable standard, and thereby operate more cheaply.

Mr Power said he expected the blended product would attract a premium to the benchmark iron ore price, which is for ores with 62 per cent iron content.

Fortescue has historically sold its Pilbara product at 8 to 12 per cent below the benchmark price, because it has a slightly lower iron content.

Fortescue exported 165.4 million tonnes from Port Hedland during the 2015 financial year and expects to ship a similar amount in the year to June 30, so the new joint venture with Vale is expected to affect between 25 and 30 per cent of the miner’s current production.

“This is another positive development in the evolution of Fortescue and increases its credibility in the market’s eyes as a sustainable, long-term, viable iron ore company. O goshi judo Not that I ever doubted that, but some people did.

“Long term, this could be viewed as the first step of a more disciplined approach to iron ore supply by aligning two of the big four [iron ore miners]. Electricity units of measurement We expect the market to react positively to this news,” he said. Gas after eating bread Regulatory implications

Mr Power said he hoped the MoU would be formalised within three to six months, and Fortescue had already briefed Chinese regulators on the plan.

“There is no reduction in competition from this, if anything it improves the competitiveness of supply to the Chinese steel industry,” said Mr Power on Tuesday.

But Mr Wilkins was not so sure that regulators would be sanguine about the deal; “there may be regulatory implications from China, in our view”.

The notion of Vale buying 15 per cent of Fortescue might also attract the attention of Australia’s Foreign Investment Review Board (FIRB), particularly given the Brazilian government’s sway over Vale.

Originally a government-owned company, Vale was privatised in 1997 on the grounds that the government was given “golden shares” in Vale, which mean it can veto proposals.

“The Treasurer will consider a wide range of issues in any decision making in any foreign investment application and will rely upon detailed advice that would be prepared by FIRB.”

Australian Competition and Consumer Commission chairman Rod Sims said Fortescue and Vale had not contacted him about the proposal, but his agency would examine the proposal to ensure it did not breach competition rules.

The Premier of Western Australia, Colin Barnett, has told a conference in Perth on Tuesday that he would not be opposed to Vale and Fortescue establishing the proposed partnership.

“As I understand it they are going to blend their ores in China. Gas x strips after gastric sleeve To me that is innovative and just part of the market process in the iron ore industry so I am not concerned about it, I think it is probably good for FMG and good for exports,” he said.

Vale has a long history of working in Australia, having owned coal mines on the nation’s east coast and nickel exploration tenements in the Fraser Range region of WA.

Vale is in the middle of a $US14.5 billion iron ore expansion project in the Carajas region of Brazil, which will push the company’s iron ore exports beyond 400 million tonnes a year.

“I don’t think anything in this would change those plans but certainly the ability to blend with our ores and meet that sector of the market is a very strong addition to their marketing for their Carajas ores,” he said. Gas mask drawing Export caps

Fortescue has recently vowed to cap its exports at about 165 million tonnes per year, and has been critical of large rivals, including Vale, for continuing to grow their exports amid weak iron ore prices.

“No change to our production guidance for this year, we haven’t given guidance for FY17 and we will do that as we continue to observe how the market is shaking up, but right now I don’t see any justification for any increased volumes into the market,” he said.

“Our criticism of the industry was the tactics and strategy of deliberate oversupply to try and drive competitors out of the market and that is what we railed against … Electricity projects for class 12 this is not any strategy to try and exert control over the market, it is rather trying to capture value that exists there by creating a blend that feeds a market segment and meets a market demand that we believe will suit our customers very nicely.”

Mr Power said he did not recall which company had made the first approach, but the non-binding deal had been under discussion for close to a year.

“The talks have been ongoing for probably a year now and we have been in quite strong discussions since then exploring the outlines of this and we have now brought it to a stage when we can put it in an Mo U,” he said. Gas laws worksheet with answers Share price surge

Asked if it was investigating the timing of Monday’s share price surge and Tuesday’s announcement, the Australian Securities and Investments Commission was non-committal.

“We do not comment on specifics but generally, ASIC makes inquiries into disclosure issues and trading consistent with our usual practices around company announcements which result in significant market movements. We also closely review all trading ahead of material announcements,” said a spokeswoman for the regulator.

Mr Power said Monday’s sharp share price rise was a sign that short-sellers were forced to buy stock and close out positions rather than any leak of the Vale deal.

“We did want to bring it to the market and make sure there was full transparency as soon as we could – I don’t think there is any relationship to the share price, if you look at our share price move versus the rest of the market, it is pretty well in line,” he said, in reference to iron ore juniors like BC Iron and Atlas Iron rising more than 30 per cent on Monday, and South African iron ore company Kumba rising 22 per cent.

“Fortescue is a very heavily shorted stock and what we have seen over the last 24 hours is an unwinding of shorts in the iron ore price and many of the listed stocks that are seen to have factored into iron ore or China,” said Mr Power.