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Fortescue bids to branch out from iron ore

25 Jan 2013 THE AGE
BY PETER KER


FORTESCUE Metals Group days as a pure-play may be numbered, after chief executive Nev Power confirmed his wish to diversify into commodities and industries beyond iron ore.

Fortescue's 100 per cent exposure to the iron ore market ensured a bumpy ride for the heavily-geared company through 2012 as the iron ore price temporarily slumped to its lowest levels in several years.

Both Fortescue and the iron ore price have recovered significantly since that slump but Mr Power confirmed on Thursday he was keen to diversify the company's portfolio.

"We have a very open mind as to where we might expand the company beyond our iron ore assets," he said.

While Fortescue chairman Andrew Forrest long held vision has been to build a "new force in iron ore" he recently flirted with an investment in shale oil exploration in Western Australia, based on the strategy of finding long-term energy supplies for the company's iron ore operations. Mr Power said while the energy sector would be the natural place for Fortescue to invest, there was also a desire to diversify for the sake of becoming a broader-based company.

"We recognise there may be some opportunities coming up in other commodities and other industries and therefore we will always be reviewing where those opportunities lie, where we think we can leverage on our core skills," he said.

This week Fortescue struck a joint venture deal to allow gold miner Northern Star to explore on its tenements for minerals other than iron ore.

But in the short term Fortescue's biggest corporate focus is the possible sale of a stake in its port and rail assets, held as a subsidiary called TPI.

Fortescue confirmed in December that it was open to selling a minority stake in TPI and Mr Power said that process had moved on.

"We've had very strong interest," he said.

Such a deal is expected to be worth up to $3 billion to Fortescue, with North American pension funds among the likely suitors.

"We would expect to have a short-listing of that probably within the next four or five weeks," said Mr Power.

The comments came as Fortescue reported a strong December quarter in which it beat expectations and shipped 19.6 million tonnes of iron ore.

The company remains on track to hit a production rate of 155 million tonnes a year by December and to produce at least 82 million tonnes in the year to June 30.

Fortescue received an average price for its iron ore of $US111 a tonne during the December quarter, above the $US85 to $US90 a tonne that is currently needed for the company to break even.

The benchmark iron ore price was above $US147 a tonne on Thursday and Mr Power said he expected the Chinese government to continue to commission infrastructure projects that would support demand for steel and therefore iron ore. Fortescue shares closed down 3¢ at $4.63.

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