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Fortescue tie-up with a China steel group makes sense-official
May 28, 2015 / 6:58 AM / 3 years ago

Fortescue tie-up with a China steel group makes sense-official

SYDNEY, May 28 (Reuters) - Debt-heavy Australian iron ore miner Fortescue Metals Group could find willing investors in Chinese steel mills anxious to ensure multiple sources of supply for the raw material, a senior Chinese government official said on Thursday.

Media reports this week said Fortescue - already about 15 percent owned by Chinese steelmaker Hunan Valin - has held talks with Chinese industrial conglomerates CITIC Ltd and Baosteel Group. Fortescue said only it was not aware of any parties seeking regulatory approval to take a stake in the company.

Li Xinchuang, vice secretary general of the China Iron & Steel Association, said Chinese steel producers were a natural fit to help Fortescue compete through price cycles with mega-miners Vale, Rio Tinto and BHP Billiton .

“The key for them is to have a good partner to help them pay their money back,” Li told Reuters on the side of a business conference.

Fortescue relies almost exclusively on sales to China for its revenue.

Li predicted the ore price was unlikely to budge much from its recent price range, averaging between $55-$65 a tonne this year and would go only slightly higher in 2016.

That’s more bullish than Citigroup, whose annual average price forecast is $40 a tonne over 2016-2018.

Fortescue in April refinanced $2.3 billion of its $9 billion in gross debt on a third attempt, but was forced to pay a higher yield amid investor concerns about the state of the iron ore market.

It is facing repayments of $6.3 billion in 2019 and the company in recent weeks has reiterated a willingness to consider fresh investors in its mines or support operations, such as rails and ports.

Iron ore fell to a decade-low of $46.70 a tonne in April and even at just above $60 currently, is less than half of last year’s peak.

Fortescue in April said it had improved its total delivered cost by 17 percent on the prior quarter, and was targeting a break even price of $39 a tonne.

Li also forecast total Australian iron ore imports to China in 2015 would rise by 30 million tonnes to 600 million this year over 2014.

This was not surprising given higher production targets set by Rio Tinto and BHP this year, as well as Fortescue. (Editing by Richard Pullin)

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