twiggy

Forrest hits great wail of China
Robin Bromby and Catherine Armitage
March 30, 2005
ANDREW Forrest's rift with his powerful Chinese partners deepened yesterday as he warned he was prepared to jettison their support to retain control of his $1.85 billion Pilbara iron ore dream.

Last night, China Metallurgical Construction Group, which has an agreement to oversee construction of Mr Forrest's mining project, retaliated with a threat that the entire Chinese market would be closed to the Australian entrepreneur if the two companies could not resolve their differences.

Relations between Mr Forrest's Fortescue Metals Group and China Metallurgical have been rocked by last week's attack by the Chinese on the viability of Fortescue's Pilbara iron ore project.

The comments, seen by observers as a tactic to force down Fortescue's shares to snare a bigger stake in the project, carved $280 million off the company's value before trading was suspended on Thursday.

Yesterday, Mr Forrest warned the Chinese he had already been talking to rival groups, including Leighton Holdings, "in parallel" to the Chinese, about taking over construction of the Pilbara mine and associated port and rail infrastructure.









"This project itself is much bigger and more valuable than any particular construction company," he said.

In what may be seen as a further slap in the face for Beijing, Mr Forrest said Pilbara iron ore should be predominantly controlled by Australian interests, not an overseas concern.

And he conceded that Fortescue's decision to hire Citigroup to find other potential partners -- revealed to the market only yesterday, even though the deal was made four weeks ago -- would be "unnerving for the Chinese".

Without naming China Metallurgical, he tore into the company at a press briefing, accusing the Chinese of trying to gain a negotiating advantage and fostering a whispering campaign. "We aren't a litigious group but we have commercial and legal avenues open to us," he added.

Asked whether these comments would burn bridges between Fortescue and China Metallurgical, he replied: "It's not us who chose to take it public."

A China Metallurgical spokesman last night claimed it was the gateway to the Chinese market for Fortescue, which wants to break the iron ore duopoly of BHP Billiton and Rio Tinto in the Pilbara.

"If they want to talk with Chinese companies, all Chinese construction and steel and iron companies, they have to talk with Metallurgical," he said. "We represent all Chinese companies."

But Xu Zhongbo, an independent consultant on the Chinese iron and steel industry, dismissed the spokesman's claims as "big talking, only a wish or a dream". The state-owned company, Dr Xu said, had "no political power".

Last week, China Metallurgical president Shen Heting claimed Fortescue had no binding agreement with his company to pay for the project development, nor did Fortescue have firm orders for iron ore from Chinese steelmakers. It was also revealed that the Chinese wanted to take a majority interest in Fortescue.

Yesterday, Mr Forrest insisted the agreement with China Metallurgical was binding.

However, a copy of a framework agreement released yesterday says only that "the parties will jointly develop and agree on" negotiating a general contract on a build-and-transfer agreement, the scope of work to be included in that contract, a list of joint venture partners or subcontractors, a schedule of works and a costing of the development.

Fortescue investors initially drove the stock another 19 per cent lower to $3.05, before sending it hurtling back to $4. It closed just 7c weaker at $3.70.

Mr Forrest's hopes of shipping his first ore by late 2006 are now fading.