FMG trading halts showed deal importance
25/11/2010 7:21:21 PM
Fortescue Metals Group Ltd says its request for trading halts prior to the announcement of "binding" deals with Chinese entities in 2004 showed that the agreements were more advanced than mere letters of intent.
Fortescue on August 23, 2004 - three days after it requested a trading halt - announced that it had entered into a binding contract with China Railway Engineering Corporation to build and finance rail lines at its flagship iron ore project in Western Australia's Pilbara.
Fortescue shares closed 7.3 per cent higher that day at 59 cents.
It requested another trading halt on November 5, 2004, prior to announcing two further infrastructure deals with Chinese entities. Four days later, it issued more information on these agreements sending its shares soaring by 35.5 per cent.
The three deals were later clarified to be "framework agreements" but the arrangements unravelled and final contracts were never completed.
Fortescue lawyer John Karkar, QC, says the miners call for trading halts underpinned its legal argument that the deals were binding.
The miner is defending itself against the corporate watchdog's second attempt to prosecute Fortescue for alleged misleading and deceptive conduct in relation to the infrastructure deal announcements, which it says were exaggerations because they were not binding.
The Australian Securities and Investments Commission (ASIC) is appealing last year's Federal Court dismissal of its case against Fortescue and chief executive Andrew Forrest.
ASIC had failed to convince Justice John Gilmour that Fortescue had overstated the nature of the Chinese deals.
Mr Karkar on Thursday said the trading halts showed Fortescue believed the infrastructure deals were more significant than two memoranda of intent (MoI) and one memorandum of understanding (MoU) to buy Fortescue's iron ore that were announced between December 2003 and March 2004.
Fortescue did not request a trading halt before announcing these sales deals, which did not substantially effect its share price.
"If we thought we were entering into an MoU or MoI, we might not have requested a trading halt," Mr Karkar told the Full Bench of the Federal Court in Perth on Thursday.
Mr Karkar conceded that the trading halt requests were consistent with the view that the infrastructure deal announcements might have had a material effect on Fortescue shares - as ASIC had attested.
But it was also consistent with the view that Fortescue believed the deals to be important, he said.
"It might reflect abundant caution by the company," Mr Karkar told the court.
He also said it was not material for a junior, speculative stock to have a substantial daily price movement of, for instance, 15 per cent, although this was material for a large, existing minerals producer.
The hearing continues.
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