Forrest shores up Fortescue with $40m

In what is being seen as an attempt to flush out short-sellers circling the company, Mr Forrest, who now holds just shy of one-third of the miner, declared he would "continue to accumulate" shares in Fortescue, despite shares slumping 15 per cent in the past week to a more than two-year low.

The move came as spot benchmark iron prices tumbled to a post-financial crisis low of $US90.30 and the Chinese giant Baoshan Iron and Steel warned that global demand for iron ore would remain subdued, and could even drop.

"I certainly expect prices to bounce," Mr Forrest said in Perth. "I think it's been completely overdone."

With major miners BHP Billiton and Rio Tinto trading near milestone lows, and bulk commodity prices continuing to fall, yesterday's ABS Investment intentions survey indicated that Australia's mining investment boom was also gradually coming off the boil.

Nearly $1 billion in value was wiped off major listed mining services providers yesterday, which are expected to be hit especially hard by project delays.

The Utah-based Boart Longyear plunged 37 per cent, while ALS (formerly Campbell Bros) was down 8.7 per cent, Ausdrill down 11 per cent and Imdex off 19 per cent.

Confidence within the industry was rocked by last week's news that more than $50 billion worth of projects, including BHP Billiton's planned Olympic Dam expansion, have been indefinitely put off. Mining and media magnate Kerry Stokes insisted Australia's economy would withstand falling commodity prices and a slowdown in China.

"Our mining industry is sound," he said. "We may have to take the tops and the bottoms off, but at the end of the day we have a very sound opportunity to build long-term futures as a supplier to our eastern neighbours, including China and Japan and India."

The slump in commodity prices stems largely from fears that China's economic growth is slowing.

Mr Forrest yesterday acknowledged the days of iron ore prices at $US180 were over, but added that yesterday's spot price was an "overreach on the other side".

He said the sharp drop in prices was due to distressed steel mills in China running down their inventory stockpiles, but they would have to return to buying iron ore within months to fuel the underlying growth in construction in the Chinese economy.

Mr Forrest's Fortescue share purchases, totalling $39 million across two separate tranches, were small compared with his existing stake, but also follow a $105 million buying spree in June.

Beijing-based investment analyst Tim Murray, of J Capital Research, said he agreed that iron ore prices would begin to edge up by October as demand stopped falling. "I just think the destocking has been pretty large and it's hard to continue," he said.

Patersons' Alex Passmore said a floor would likely still come, but it needed some time. Patersons last month downgraded its long-term forecast to $US80.

Mr Passmore said that because of earnings downgrades that he forecasts would flow through the market, hitting the financial year ending in 2014, iron ore stocks still had some way down ahead before a pick-up.

"They can trade below valuation for some time," he said. "Over time the stocks will be proven to be cheap at current levels, but at the moment if you're buying these stocks you're buying cum-downgrade for financial year 2013 and 2014."