Fortescue Says Remains in Financing Talks With China

By Rebecca Keenan and Stephen Engle

Aug. 19 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third biggest iron ore exporter, remains in talks with Chinese groups to secure as much as $6 billion to expand.

“We have held discussions with major Chinese financiers to extend credit to around $5.5 billion to $6 billion to Fortescue,” Chief Executive Officer Andrew Forrest said today in an interview on Bloomberg TV. Fortescue wants to have the financing secured by the end of September, it said on Aug. 17.

Fortescue has been seeking funding as a cash squeeze and lower iron ore prices forced it to put expansions on hold. The Perth-based company may need between $3 billion and $4 billion to proceed with plans to almost double output, Hunan Valin Iron & Steel Group, its second-largest shareholder, said in May.

Fortescue rose 2.3 percent to A$4.50 at the 4:10 p.m. Sydney time close on the Australian stock exchange. It has more than doubled this year, compared with an 18 percent gain in the benchmark index. Forrest wouldn’t be specific on who the company is talking to.

Securing financing is a condition of Fortescue’s agreement with Baosteel Group Corp., China’s largest steelmaker, and the China Iron & Steel Association to cut contract iron ore prices by 35 percent.

The price agreement is deeper than the 33 percent reduction offered by Rio Tinto Group, the largest exporter of Australian iron ore, and 47 percent less than the current spot price for benchmark ore from Australia.

Price Agreement

The steel association said it wants to apply the price agreement to all ore purchased by the country, eliminating differences between contract and spot prices.

“CISA is very much a part of China’s correct belief that their people deserve a stable iron ore pricing system and not one that has a benchmark with responsible supplies and then a speculative and hugely volatile and expensive price for short term supplies,” Forrest said. “ It is clearly not in China’s best interest to have this two-tiered, dysfunctional system.”

Fortescue will sell 20 million tons of iron ore in the six months ending Dec. 31, and China will give it priority to negotiate 2010 prices, the Perth-based company said. China bought 444 million tons of ore last year from suppliers.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net;