Fortescue Metal Group has failed to complete arranging an estimated $US5-$US6 billion in cheap financing from China.
And it has also not explained what this means for the August 17 iron ore pricing deal with the Chinese steel mills.
Was Fortescue a victim of the crack down on surplus capacity (See the lead story)?
We don’t know because the company said very little yesterday.
In a short statement to the ASX yesterday, the company said:
"Fortescue Metals Group Ltd (“Fortescue” “ASX:FMG”) advises, with regard to its Agreement announced on 17 August 2009 with the Baosteel Group and China Iron & Steel Association “CISA”, that the condition subsequent relating to the completion of finance by 30 September, 2009 will not be met in time. Fortescue intends to continue working co-operatively with CISA including the provision of attractive iron ore pricing if requested."
But not a word about the details contained in that August 17 statement, such as whether Fortescue would continue with a price discount on 20 million tonnes of "wet" iron ore shipped to Chinese mills from July 1 to the end of the year. Nor was there any confirmation that 20 million tonnes would be shipped.
No explanation was given about the future financing request revealed in the August statement such as: has Fortescue halted plans to obtain the money, is it still talking to Chinese banks and CISA, plus Baosteel about the proposal, and is there a plan to seek the money elsewhere (very unlikely).
There have been numerous media reports since February of this year that Fortescue was hunting for new money: figures of $US1 billion or more were mentioned, as well as new equity.
Hunan Valin, a major Chinese steelmaker, took a 15% stake in Fortescue in February.
Despite that deal, the stories of Fortescue’s hunt for more money resurfaced in April-May and culminated in the statement on August 17 which for the first time put a figure on the company’s desired amount.
Since then, not a word until yesterday’s brief statement.
Its brevity was in contrast to the August 17 statement on pricing and the funding news.
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"Fortescue Metals Group Ltd (“Fortescue” “ASX”:”FMG”) has achieved a landmark agreement with Baosteel Group Corporation (Baosteel) and China Iron and Steel Association (CISA) for an agreed China price for all Fortescue iron ore sold to Chinese mills for the period July 1 to December 31, 2009.
"The agreement, signed by Baosteel and CISA, commits Chinese steel mills to acquire approximately 20 million wet metric tonnes from Fortescue for the period between 1 July and 31 December 2009.
"The agreed price is US$0.94 / dry metric tonne unit (“dmtu”) for Fortescue’s Rocket Fines (on an FOB basis) and is around 3% under the price agreed by other Australian producers with non Chinese Steel mills. This price equates to approximately US$55.50 per dry tonne for Fortescue grade iron ore. Fortescue has also agreed a lump price of US$1.00/dmtu for high grade lump which is equivalent to approximately US$61 per dry tonne FOB.
"A condition subsequent to this agreement is the completion of finance by 30 September 2009, by Chinese financiers on terms acceptable to Fortescue. This is estimated by Fortescue to be an amount of US$5.5 billion to US$6 billion.
"Under the Agreement, CISA has guaranteed that a priority will be given to FMG to negotiate iron ore prices for 2010 if the annual pricing negotiation is conducted.
"Fortescue Chief Executive Officer, Mr Andrew Forrest, said the agreement breaks the market impasse which has enveloped the Chinese iron ore industry in uncertainty and added risk for the past 12 months.
“This groundbreaking agreement cements the strength of the bilateral relationship between Australia and China in which mutual issues can be resolved and future opportunities identified. It also creates a realistic and agreed iron ore price that delivers value for all parties and provides strong support for Fortescue’s continued growth” Mr Forrest said.
“The ongoing market speculation has promoted unprec
