bhp opinion, page-98

Interesting action on BHP this morn. Maybe it is in response to this. Would imagine those at BHP would be lobbying very hard to the government to prevent this from happening

Forrest, China in talks over Pilbara pushJohn Garnaut Hainan Island, China
April 20, 2009
THE founder of Fortescue Metals Group, Andrew Forrest, is pursuing talks with China's sovereign wealth fund about investing many billions to expand its Pilbara iron ore mine.

Mr Forrest dined with China Investment Corp's chief, Lou Jiwei, at the Boao economic forum on Friday night.

The Herald saw Mr Forrest in further talks with a CIC official, Bai Xiaoqing, in the gardens of the Sofitel Hotel on Saturday.

One source close to discussions said the $US200 billion fund was seeking to finance a mammoth mine expansion in a way that was financially structured to avoid triggering problems with Australia's Foreign Investment Review Board. The proposed investment would allow CIC to share in the profit "upside" without exercising control or management participation, the source said.

Another source cautioned "we're not ready to do a deal at this point in time".

The issue of control and management influence rights would appear to be a stumbling block to any deal with CIC. At the Boao forum on Saturday, Mr Lou bluntly dismissed European and US calls for sovereign wealth funds to provide greater transparency, cap the size of their investments to less than 10 per cent and forgo shareholder voting rights.

"If we invest in something we must have voting rights," he said. "How can we just abstain from exercising voting rights? We cannot accept this principle."

Without naming individual countries, he also slammed "the emergence of financial protectionism" in the developed world, including what he described as vaguely defined national security tests. "There must be a very explicit definition of national security of recipient states," he said.

The world's sovereign wealth funds were banding together to make their case, he said. "We have decided to set up a club to share our opinions and fight against financial protectionism."

While Mr Forrest and CIC are courting each other, Fortescue's earlier $1.2 billion investment deal with Hunan Valin Steel continues to await Chinese Government approval - despite efforts by both sides to track down the responsible official at Bo'ao over the weekend.

In an impromptu joint interview on Friday night, Mr Forrest and Valin's chairman, Li Xiaowei, dismissed speculation that the National Development & Reform Commission boss, Zhang Ping, was deliberately withholding his approval in order to send a message that he was unhappy about the Australian Government imposing conditions and restrictions on Chinese investments.

"This process going on is actually going much faster than we anticipated," Mr Li said.

"We've never heard anything negative since we applied. There shouldn't be a problem."

Fortescue reached agreement with Valin in February and received approval from the FIRB two weeks ago, with minor conditions.

A signing ceremony that had been scheduled for Sunday morning was cancelled on Saturday night.

Mr Forrest said that he had "spent considerable time" convincing Mr Li to invest in Fortescue without receiving management control beyond board representation.

"We don't come and try and advise chairman Li on how to run his steel plants," he said.

Mr Forrest, who is coming under great pressure by the Chinese steel mills to strike the first benchmark contract price agreement, said he remained optimistic about the short- and long-term outlook for Australian iron ore exports as they displace China's domestic production.

But he said it was possible the price talks may not result in any agreement this year for the first time in 40 years - an outcome that could mark the disintegration of the benchmark system in China.