Fortescue wins $1.1b iron ore deal
Fortescue Metals' bid to create a second business out of two low-profile magnetite assets is alive and well, after the iron ore miner struck a surprise $1.1 billion deal with a Taiwanese steel major on Friday.
Fortescue has welcomed Taiwan's Formosa Plastics Group into a partnership with the "FMG Iron Bridge" entity that was created 14 months ago when Fortescue spun a couple of low priority assets into a joint venture with China's Baosteel.
FMG Iron Bridge was expected to float on the Hong Kong Stock Exchange soon after it was launched, but it faded from prominence when the iron ore price fell sharply late last year.
But Friday's deal with Formosa has breathed new life into the concept and shed new light onto the value of both FMG Iron Bridge and Fortescue's port and rail assets.
Formosa will pay $123 million to own 31 per cent of a new partnership with FMG Iron Bridge and will provide $US527 million ($574 million) to construct the first stage of the project in the Pilbara.
Formosa has also agreed to participate in a second stage of the FMG project, as well as purchase 3 million tonnes a year of iron ore from Fortescue at market prices.
Crucially, Formosa has agreed to make a pre-payment of $500 million to Fortescue for use of its Pilbara port and rail assets.
That payment not only helps Fortescue meet its $2 billion debt obligation due around Christmas 2015, but also allows the miner to show the market that customers are willing to pay large sums to access its port and rail infrastructure.
Fortescue has been mulling the sale of a stake in its port and rail assets, and is also fighting against smaller neighbours who are seeking to access its railway under third party access laws.
Fortescue boss Nev Power said Formosa's access to the infrastructure was separate to those other processes, but did send an important message.
"What I think it does do very clearly is demonstrate the tremendous value that is in the infrastructure we built, it's world-class infrastructure, it's highly efficient and highly productive," he said.
Mr Power indicated that further partners may be brought into the joint venture, with Fortescue hoping to lower its 61 per cent ownership of the assets.
"We want to maintain a minority interest in the project, but with an interest now effectively at 61 per cent we do have some further opportunity, and of course we are 88 per cent within FMG Iron Bridge so there is certainly an opportunity for further investment by others in the project," he said.
The first stage of the project will see 1.5 million tonnes of beneficiated hematite - a type of iron ore - exported as early as 2015.
The second stage will see 9.5 million tonnes of concentrated magnetite - another type of iron ore delivered in a processed slurry or paste - piped to Port Hedland for export. The deal requires approval from Australian and Taiwanese regulators.