FORTESCUE METALS has terminated a proposed deal that would have had the company diversify into West Australian shale gas.
On Tuesday, less than two months after the shale minnow Oil Basins Limited claimed to have secured Fortescue as a cornerstone investor and new biggest shareholder, Oil Basins said Fortescue had walked away from the proposal.
Cancellation of the proposed deal does not come as a major surprise, given that it was behind schedule and attracted the attention of Australia's corporate regulator in relation to movements in the Oil Basins share price before the proposal was announced.
When revealed on November 15, the deal lifted Oil Basins' share price about 35 per cent because it appeared to represent a major coup for the tiny company to pair with a big company such as Fortescue.
Worth just $4.2 million, the deal was trivial for Fortescue but loomed as a symbolic diversification beyond iron ore.
In the November 15 announcement, Oil Basins said the deal was non-binding but was expected to be finalised within five business days.
"Oil Basins Limited ... is pleased to advise the Australian Stock Exchange that it has secured a strategic cornerstone investment in the company by Fortescue Metals Group," said the first paragraph of the original statement to the ASX.
Later that day, when Fortescue finally commented on the news, the iron ore miner was more circumspect.
"Fortescue's existing operations use a large amount of energy in the form of diesel and potentially natural gas," a Fortescue spokeswoman said. "If we do finalise an agreement with Oil Basins, this modest investment would form part of this strategy."
Suspicions the deal might not go ahead started to grow when it was not finalised within the five days.
Finally this week, Oil Basins released a statement to the ASX confirming Fortescue would not become its cornerstone investor.
"OBL advises that on January 14, 2013, discussions on the letter of intent were terminated by Fortescue," said Neil Doyle, the chief executive of Oil Basins.
Oil Basins claimed Fortescue remained interested in acquiring some acreage in the area - known as Derby Block - should it be awarded to Oil Basins by the WA Mining Minister.
A Fortescue spokeswoman said on Tuesday: "We have been in discussions with Oil Basins over potential gas resources in the Canning Basin, however, we have been unable to agree acceptable terms on which to proceed with a transaction."
Fortescue shares were 9¢ lower at $4.64 at the close of trading, while Oil Basins remained in a trading halt.