csm & fortescue

The big news for FMG re the China deal is also big news for CSM.

I'm looking for further boosts in the SP for both companies based on this news.

Chinese back Fortescue in $1.85b project
November 6, 2004 - 2:59PM

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Mining entrepreneur Andrew Forrest's vision of a "new force" in the Pilbara iron ore industry has leapt closer to reality with two Chinese companies committing to finance and build port and mine operations.

The two new binding contracts, signed in Beijing on Friday, complete the trifecta for Mr Forrest's Fortescue Metals Group Ltd after China Railway Engineering Corp in August agreed to bankroll and construct the largest component of the $1.85 billion project - the rail line from Port Hedland to the proposed mine site in the Chichester Ranges.

Under the latest agreements, China Metallurgical Construction (Group) Corp would provide a financing, design and construction package for the mine and a processing plant at the Christmas Creek site.

China Harbour Engineering Corp would likewise provide financing, design and construction for the large-scale works needed at Anderson Point in Port Hedland to handle Fortescue's shipments.

The three groups are among the largest state owned enterprises in China.

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AdvertisementMr Forrest said the contracts would limit Fortescue's initial financing requirement to less than 10 per cent of the estimated $1.85 billion total project cost with the balance covered largely by prepayment commitments from customers.

"These commitments from customers provide cost effective finance that does not have an equity dilution effect for existing shareholders in Fortescue Metals," he said.

However, the group was not ruling out further joint ventures with the Chinese and other multi-national corporations, he said.

In recent weeks Fortescue has announced several long-term binding sales contracts - with prepayment conditions of up to $35 million - that provide for a total delivery commitment of eight million tonnes of iron ore a year of an estimated initial production level of 45 million tonnes per annum.

Payment terms for the 90 per cent balance are structured on a staged basis, effectively providing a finance facility for the major portion of the project cost, Fortescue said.

"The construction funding significantly enhances the economic value of the project by de-risking the development phase - often an issue with the greenfields project financing," Mr Forrest said.

The contracts keep Fortescue on track for a 2007 start-up.