china and iron ore, page-24

Juniors have missed funding boat: Forrest

20th October 2008, 6:00 WST


Fortescue Metals Group chief executive Andrew Forrest has signalled that Chinese investment in WA’s junior iron ore industry could be drying up, yesterday suggesting the current funding cycle “is clearly closed”.

In a worrying sign for the next wave of would-be miners, Mr Forrest sounded a note of caution when asked if he believed China still wanted to invest in Australia’s iron ore industry.

“Look, I think they do, but basically if you missed the last major development opportunity … then I think you possibly do have a long time to wait,” he said.

“The major Asian investors are looking for assets with proved operations and I think that the drive will be for quality in their investment.

“I really don’t want to and can’t comment on the junior players. All I can say is that they’re going to need to have very patient capital to catch the next funding cycle because this one is clearly closed.”

Mr Forrest, who has been unusually vocal in recent months in a bid to explain the company’s sharp share price slumps, which he has attributed partially to short sellers, said that while Chinese growth was easing, Fortescue was “simply not seeing” a slowing in demand for its own product.

He said the company saw demand for its high-value fines product becoming “even more popular” in tough times and said Fortescue had strengthened its relationship with China by not taking advantage of record spot prices earlier this year.

Mr Forrest’s comments come against a backdrop of mounting investor concern that the global economic slowdown will curb Chinese demand for Australian commodities more sharply than previously thought.

The iron ore sector has been under the spotlight after mid-tier producer Mt Gibson Iron said it had received requests from some Chinese customers to delay shipments.

Comments from Rio Tinto’s chief executive, Tom Albanese, last week that the company might delay an expansion of its Pilbara iron ore operations because of fears of slowing Chinese demand has added to the malaise.

Analysts have cut their forecasts for next year’s benchmark iron ore prices, with some warning a 20 per cent drop is possible.

Shares in Fortescue have fallen 35 per cent since the start of the month, Rio Tinto stock has dived 25.8 per cent and BHP Billiton is off 20.2 per cent in the same period.

The tide of negative sentiment comes as David Flanagan’s Atlas Iron is understood to be trying to secure offtake deals ahead of what it hopes will be its first shipment before the end of the year.

Atlas, which received final environmental approvals this month, is suspended from trading pending an announcement.

KATE EMERY