FORTESCUE metals founder Andrew Forrest has hit back at suggestions by hedge fund operator Jim Chanos that his company was over-promoted and a "value trap".
Mr Forrest believes Mr Chanos has an active short position in Fortescue shares that is placing a bet that Fortescue's share price will fall.
The Perth billionaire told Businessday he was also aware of numerous negative rumours surrounding the company, including one suggesting the Russian steel magnate Victor Rashnikov's MMK is looking to sell its 5 per cent holding in Fortescue.
Mr Forrest disputed that suggestion revealing that, until recently, MMK and Fortescue had been working on a joint venture to develop a steel mill in the Pilbara. The plan had been talked about for several years.
The talks were abandoned because the gas price was too high to make the project feasible according to Mr Forrest, whose complaints echo those of many large Australian businesses.
Fortescue doesn't believe MMK is a seller but falls shy of directly accusing Mr Chanos of starting the talk.
He notes Mr Chanos is a China bear unlike BHP, Rio Tinto and Fortescue, which have been uniformly positive on the medium-term outlook for iron ore demand.
"We have seen China defy its sceptics by doing just what it said it would do. It has already delivered its 12th five-year plan despite the smoke in the background from global economies," Mr Forrest said.
Meanwhile, Fortescue remains on track to reach its annualised production level of 155 million tonnes per year out of its Chichester mines and the newest addition, the Solomons.
On top of this the company is in the early stages of exploring a third area, Nyidinghu, which the company believes has a resource of around 2.5 billion tonnes that could add another 50 million tonnes per annum to production.
Over the past six months resource stocks including Fortescue, Rio and BHP have underperformed the broader market thanks to slippage in the price of iron ore down from $US160 ($A153) per tonne to $US140 a few weeks ago. It is now a little higher at $US148 per tonne.
There is plenty of profit margin at these price levels but the market gets concerned that bigger falls will take the gloss off the massive returns.
The big players in the iron ore industry are voting with their wallets. Fortescue, BHP and Rio are pouring unprecedented amounts of capital into raising supply from the Pilbara in what appears to be a race against time.
Acquiring producing mines and infrastructure could be the fastest and most expedient way to boost production and export sales.
This explains why Mr Forrest describes Fortescue as "the prettiest girl at the dance". At 155 million tonnes a year next year it will match BHP's production.
The Pilbara "dance" now has almost as much to do with infrastructure as it does with reserves, which is part of Fortescue's appeal as it has four berths at Port Hedland and a railway.
In the past Rio and BHP have had almost all the negotiating power when buying stranded iron ore tenements from owners without infrastructure and have a rich tradition in excluding others from access.
Fortescue has been allowing smaller miners onto its rail lines but charging hefty rental.
Last week smaller producer Atlas outlined plans for a study into building a new Pilbara rail line in partnership with Queensland Rail to increase its exports.
This rail line would be open access in the same way QR National operates with coal in Queensland.