twiggy has done this before (anaconda)

Forrest to mend fences in China
Andrew Trounson
April 02, 2005
ANDREW Forrest will fly to Beijing next week in a fence-mending mission after the would-be West Australian iron ore czar's falling out with Chinese backers this week.

But Forrest is also expected to approach BlueScope Steel next week as one of a number of potential new backers for his ambitious $1.85 billion iron ore mine, rail and port development in the Pilbara.

Shares in Forrest's company, Fortescue, have plummeted by as much as 46 per cent in the wake of the rift with China Metallurgical Construction Group, which questioned the viability of Forrest's project and said its agreement to oversee the construction wasn't binding.

But the shares bounced strongly yesterday, encouraged by reassurances from prospective Chinese customers that their preliminary off-take agreements with Fortescue were binding. But the dispute has still shaved more than $400 million off Fortescue's market capitalisation.

Forrest has billed his fight with the Chinese as a battle for control over Fortescue's iron ore project, which would, if developed, challenge the stranglehold on iron ore exports from the iron-rich Pilbara region held by mining giants Rio Tinto and BHP Billiton.









The Chinese have been unimpressed by recent price hikes imposed by the big producers and are actively encouraging new entrants. BHP's China president, Clinton Dines, yesterday admitted to analysts in Melbourne that he had been given a "bollocking" by the Chinese over the price increases and that the Chinese wanted to see a third producer in the Pilbara.

A Fortescue spokesman said the company's three prospective Chinese customers, Hebei Wenfeng, Jiangsu Fengli and Pingxiang Iron & Steel, had all confirmed their supply agreements were binding.

"Fortescue is in daily discussions with its Chinese partners and continues to honour its commitments with them," Forrest said. "These discussions will continue when Fortescue executives attend Beijing this month."

Forrest has accused the Chinese of fostering a whispering campaign aimed at gaining a negotiating advantage over Fortescue. In a bid to provide a counterweight to the Chinese he has appointed Citigroup to approach other investors, including steel mills in Japan and India.

Chinese steel mills are desperate to encourage new Australian iron ore producers to break the dominance of Rio Tinto and BHP, which have slapped Asian customers with unprecedented price rises in the face of tight supplies.

Rio has hiked benchmark 2005-06 prices by 71.5 per cent, and BHP is still locked in heated talks with Japanese and Chinese buyers in a bid to squeeze out an even higher price rise to reflect the freight cost advantage of Australian iron ore compared with ore from Brazil. Along with Brazil's CVRD, the three producers control almost 80 per cent of the world's seaborne iron ore trade.

Forrest has unashamedly billed himself as China's white knight to break the Rio/BHP "duopoly" on iron ore exports from the Pilbara region, much to the chagrin of the two mining giants, which are already pouring billions into expanding their production.

BHP's Dines couldn't resist a dig at Fortescue yesterday, telling analysts that he believed Gina Rhinehart's rival Hope Downs Pilbara iron ore project was a better prospect.

Dines said price negotiations with the Chinese were proving tough but BHP remained determined to drive a hard bargain.

Fortescue shares jumped 19c, or 6 per cent, to close at $3.29, valuing the company at $716.6 million. That is still a long way from a share price last week of over $5.28 and a market cap of over $1.1 billion.