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FMG deal may follow Russian Flinders bid

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On Friday 25 November 2011, 14:58 EST

A Russian steel making giant is expected to do a deal with Fortescue Metals Group after a $554 million takeover of Flinders Mines, which operates an iron ore project next to Fortescue's Solomon development.

Shares in Flinders soared on Friday after the iron ore explorer announced a 30 cents per share cash bid by Magnitogorsk Iron and Steel Works.

The shares were up 10.5 cents, or 63.64 per cent, at 27 cents by 1437 AEDT.

Almost 93 million shares in the company had changed hands, making it the most traded stock on the market.

Flinders' board has unanimously recommended the offer to shareholders, with chairman Robert Kennedy saying it represented a very significant premium and value certainty in a difficult market.

The explorer's key asset is its Pilbara project in Western Australia's Hamersley Ranges, which neighbours Fortescue's third mine under development, Solomon.

Mr Kennedy said Magnitogorsk held a stake in Fortescue of about five per cent and may be interested in doing a deal with the iron ore miner if its bid for Flinders is successful.

Flinders had been eyeing a possible "mine gate" sales deal with Fortescue as this offered an easy route to market, with the bigger miner constructing a rail link as part of the Solomon project.

"It's quite reasonable to assume they (Magnitogorsk) are in discussions with FMG," Mr Kennedy told AAP.

"They've been quite active and put substantial money into Australia and this will potentially increase their investment."

A Fortescue spokeswoman said the miner always considered such options, but could not confirm any specific discussions with Magnitogorsk.

Rio Tinto's Pilbara Iron railway lies near the Flinders project, providing another possible route to market if the mining giant will allow third party access.

Mr Kennedy said Flinders had been approached by parties from around the world, including Asia, seeking to acquire the company or become a joint venture partner.

"This is the best of them and one that the board was happy to endorse, subject to the receipt of a better offer," he said.

Mr Kennedy expects Magnitogorsk will push for the quickest possible start to the Pilbara project, where Flinders is targeting first production by early 2015.

"I think they'll be very keen to get the development underway," Mr Kennedy said.

"They'll be working on it immediately as soon as they have procured ownership."

Magnitogorsk, Russia's third largest steel maker, has indicated it wants to retain all of Flinders' existing management.

A large, 917.3 million tonne iron ore resource has been defined at the Pilbara project that complies with Australia's mineral reporting code, JORC.