news article arh....fmg deals

China pumps in ore cash
7th July 2006, 13:44 WST




China has spurred a new wave of expansion in WA’s booming iron ore industry in its bid to escape the dominance of mining giants BHP Billiton and Rio Tinto, committing more than $500 million to new mining investments in the Pilbara.
Hong Kong investment group Citic Pacific, run by billionaire Chinese businessman Larry Yung, yesterday confirmed it had paid $290 million for the right to develop Clive Palmer’s giant Cape Preston magnetite deposit in the Pilbara in a deal that will be ultimately worth up to $7 billion.
And Andrew Forrest’s Fortescue Metals Group is expected to announce as early as this morning that Hong Kong commodities trader Noble Group has won a $230 millionplus cornerstone stake in the aspiring Pilbara iron ore miner.
Noble Group, which has annual sales of more than $US12 billion ($16.2 billion), is understood to have edged out rival investment offers from a mainland Chinese consortium and a group linked to Russian steel billionaire Alexey Mordashov.
Citic Pacific’s investment in Cape Preston yesterday represents a critical milestone for WA’s fledgling magnetite industry and could ultimately become China’s biggest direct investment in Australia’s iron ore industry.
Under a deal struck with Mr Palmer’s Mineralogy Group in March, Citic’s initial investment entitles it to mine one billion tonnes of magnetite at Cape Preston and develop a $US1.37 billion pellet plant and port.
It must also pay another $US200 million in 2008 to acquire another billion tonnes of ore and develop a second $US1.1 billion operation, and holds options to acquire four billion tonnes more in tranches of $US200 million.
Mr Palmer, who has been promoting the venture since 1986, estimates Mineralogy will earn royalties of up to $600 million a year once all six billion tonnes are under development.
Each stage of the project, which will include a dedicated port at Cape Preston, is expected to generate magnetite exports worth $1 billion a year from 2010.
Acting Premier Eric Ripper yesterday welcomed Citic’s “significant investment” as a big vote of confidence in WA.
“This project has the potential to deliver significant benefits to the WA economy and the Government looks forward to it proceeding to development,” he said.
Similarly, Noble’s expected investment in Fortescue should enable the company to wrap up all financing for its $2.5 billion Chichester Range iron ore project by early next month in a bid to start production in 2008.
Once the equity deal has been completed, Fortescue is expected to launch a $US1 billion-plus bond issue in the United States to provide its outstanding requirements.
Market sources last night confirmed Noble was the frontrunner to acquire a cornerstone stake in Fortescue, though a final agreement has been held up by haggling over the extent of marketing rights to be granted to Noble.
Fortescue has already committed all but nine million tonnes of its proposed annual output of 45 million tonnes to Chinese buyers.
Fortescue hopes to announce an agreement today, but may be forced to suspend its shares while negotiations are completed.
The company called a trading halt on Wednesday after WestBusiness revealed it was close to a deal.
In a statement, Noble yesterday confirmed it was in talks with Fortescue but said no definitive or binding agreement had been signed.
JOHN PHACEAS