More action in the WA iron ore industry with shares in Fortescue Metals Group pushing through the $10 mark for the first time on an adjusted basis, propelled by suggestions that Sinosteel, the big Chinese resource buyer, might really concentrate on it if it’s frustrated by the planned Midwest-Murchison takeover.
The rush upwards in the FMG price saw the shares finish up more than 6% or 69C at $10.59. That means the major shareholder; Andrew ”Twiggy” Forrest’s 36% stake is worth more than $10.4 billion.
(The BRW Rich List is released Thursday and Mr Forrest or Gina Reinhart are tipped to be top of the list, for whatever it’s worth.)
Fortescue, which only shipped its first iron ore two weeks ago from the Pilbara, now has a market cap of about $29 billion, placing the miner behind BHP Billiton and Rio Tinto in Australia.
FMG shares have risen 37% so far this year, spurred by the talk of Chinese interest in taking a stake in the company, and the realisation that it would meet its ambitious target of getting an iron ore mine and export operation on stream by this month.
(FMG is the third iron ore exporter, but not in the history of Australian mining, as some excitable folk think. Robe River, Western Mining and Savage River has exported iron ore in either ore or pellet form from WA and Tasmania in past years.)
Fortescue’s stock has climbed in recent days after Sinosteel confirmed it was in talks with institutional shareholder Harbringer Capital of the US to take up to 8% of the company.
The discussions come after the resource company shipped its first load of commercial ore to China from its Port Hedland export facility earlier this month.
Sinosteel might be still looking for its first significant stake in an Australian iron ore group for a while.
Purchasing an 8% stake from Harbringer will be an interesting equity investment and will probably see it try to grab more control of the direction of the FMG exports. But Sinosteel looks like being frustrated by the Midwest-Murchison deal, which surprised the market on Monday.
It’s now up to Sinosteel to lift its prospective cash offer of $6.38 to make it more attractive than the $7.17 per Midwest share suggested in the merger terms with Murchison.
Sinosteel may wait until the merger happens and then use its smaller stake of around 8-9% to launch a new bid for the larger company. Both Midwest and Murchison highlighted the ”corporate interest” in the iron ore sector as one of the factors driving the merger.
Sinosteel yesterday appeared to open the door to making a higher bid for Midwest when it responded to the Murchison deal by distancing itself from comments by one of its senior managers last week that it was not prepared to raise its bid.
Sinosteel said deputy general manager, William Ren, was reported last week as saying Sinosteel would not increase its own bid, but was yesterday described as "not an official spokesman for the transaction" and "his comments were based on his understanding of public information and should not be taken as indicative of Sinosteel’s intentions".
"Sinosteel reserves its rights and will consider all options in its response" to the Murchison bid, it added.
Murchison has proposed a merger via a scheme of arrangement, offering one share and an option on issue for every 0.575 Midwest shares, valuing the target’s shares at about $7.17 each.
Murchison has a 9.98% interest in Midwest, Sinosteel has a 2.8% stake in Murchison..
Shares in Midwest were 3c higher at $7.03, while Murchison eased 20c or more than 3% to $4.23.
Meanwhile Murchison revealed an upgrade to its iron ore resources in the Mid west region of WA.
In a statement to the ASX it said.
"Murchison Metals Limited is pleased to announce a substantial upgrade of Mineral Resources at Jack Hills by Crosslands Resources Ltd (“Crosslands”).
"Crosslands’ Direct Shipping Ore (DSO) Mineral Resource has risen 13% to 79.1 Mt and its beneficiation feed Mineral Resource has risen more than fivefold to 445 Mt.
"Murchison Managing Director Trevor Matthews said the increase represented an important boost to the development of the Crosslands’ flagship Jack Hills iron ore project.
“This very substantial increase in Crosslands’ Mineral Resources re-affirms the high underlying value of the Jack Hills project,” said Mr Matthews.
“We are very encouraged by these latest figures and we look forward with confidence to the successful development of Stage 2 of the Jack Hills project.”
Crosslands is a dedicated iron ore company and one of the largest tenement holders in the midwest iron ore province.
Crosslands is owned 50% by Murchison and 50% by Mitsubishi Development Pty Ltd, a subsidiary of Mitsubishi Corporation of Japan.
Mr Matthews said the increase to the Mineral Resources further reinforced the value proposition to all shareholders of the proposed merger with Midwest Corporation.
“There remains significant potential for additional DSO and beneficiation feed along strike at Jack Hills and also at our other leases in Western Australia’s mid-west region,” he said.
