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I did not mislead: Forrest

JOHN PHACEAS



Fortescue Metals Group chief Andrew Forrest insisted FMG had not misled the market over the "binding" nature of agreements with its Chinese partners in the $1.85 billion Pilbara iron ore project as the stock plunged further yesterday.

Mr Forrest's comments came as industry news service Steel Business Bulletin claimed that two Chinese steel mills were also denying that supply deals struck with FMG last year were legally binding.

The apparent fragility of FMG's Chinese partnerships sent the stock plunging another 51¢ to $3.19 yesterday, taking its losses to 37 per cent since lead contractor China Metallurgical Construction (CMC) said last Thursday that it was not legally bound to build FMG's project.

That steep fall compares to a surge from 62¢ in September to a peak of $5.55 two weeks ago on the back of a string of positive announcements about the project's progress.

Since it first announced a railway construction deal in August, FMG has consistently said all its agreements with its Chinese partners and iron ore buyers were "binding contracts", most notably on November 5 when it announced agreements to build planned processing facilities and harbour facilities.

Only in a supplementary release on November 8 did FMG refer to the further need for confirmation of a "mutually agreed set price for embodiment into formal construction contracts".

FMG on Tuesday released a copy of its CMC deal which said it was a binding "framework agreement". The document noted a "fuller and more detailed agreement not in intent different from this agreement will be developed later".

Mr Forrest yesterday insisted that investors had not been misled over the binding nature of FMG's agreements or the requirement for further contracts to be signed.

"We have described in detail what our relationship is with the Chinese in stock exchange announcements, and I point you specifically to November 8," he said.

He was "not in any way resiling" from FMG's position that its agreements were binding on both sides of the venture, and that it was obvious the framework agreement with CMC was the cornerstone for future contracts to complete such a massive project.

"When you build a large project, you put in place the building blocks which enable the next block to be built and you have a series of binding agreements on the way up to do that," Mr Forrest said.

"It's naive in the extreme to think that you just put into place one agreement and it all happens."

FMG's November 8 announcement clearly described how both parties were bound "to create the environment" needed to settle detailed construction agreements once the bankable feasibility study had been completed.

"We delivered on our side of the bargain, and after we delivered . . . only then did the Chinese look at it and think this is an extremely valuable project and perhaps (they) should have a bigger interest than just a construction contract."

FMG would reserve its rights to take legal action over any delays caused by the dispute.

But Mr Forrest said worried investors should take comfort in the level of ongoing interest in the project both from Chinese and other parties.

"There's been no change in the underlying (iron ore) market and the value of the assets continues to increase," he said.