Fortescue’s $1.15bn deal gets Pilbara project up and running

Fortescue Metals closed a $1.15 billion deal on Friday with Taiwanese steel firm Formosa Plastics which will see its FMG Iron Bridge project get off the ground.

Formosa will join a partnership agreement, created 14 months ago when Fortescue struck a deal with Chinese steel major Baosteel.

FMG Iron Bridge was scheduled to float on the Hong Kong Stock Exchange last year, but was put on the back burner when iron ore prices plummeted in late 2012, SMH reports.

Under the new deal, Formosa will dish out $123 million to secure 31 per cent of a new partnership with FMG Iron Bridge, and will fund the first $US527 million ($576 million) to construct the stage one of the Pilbara project.

The project, located about 100 kilometres south of Port Hedland in WA includes the North Star and Glacier Valley iron ore deposits, estimated to have a combined iron ore resource of 5.2 billion tonnes.

Formosa has also agreed to purchase 3 million tonnes of iron ore a year from Fortescue at market prices and if stage two of the FMG Iron Bridge project is approved it will participate.

The company has also agreed to make an upfront payment of $500 million to Fortescue to secure access to its port and rail assets in the Pilbara. The prepayment demonstrates customers are will to pay substantial sums to access the company’s infrastructure.

Fortescue has been considering selling off its stake in its Pilbara port and rail assets, but is also battling smaller miners who are attempting to gain access to its railway under third-party access laws.

The asset sales were earmarked amidst a high Australian dollar and low iron ore prices, a situation which sparked debt issues for the company.

But the company’s financial position has since been assisted by the Aussie dollar dropping below parity with the US and the stabilisation of iron ore prices.

Fortescue chief executive Nev Power said the deal will strengthen the company’s balance sheet and when asked it The Pilbara Infrastructure (TPI) sale would go ahead he remained non-committal, SBS reports.

“TPI transactions will only proceed on the basis that we get full market value for those assets and get it on terms that allow us to continue to operate our network efficiently,” he said.

He added that the sale of “non core assets” is helping the company meet its debt obligations with increasing speed.

Power explained that granting Formosa access to the infrastructure is completely separate to the third-party access processes, but the move does send an important message.

”What I think it does do very clearly is demonstrate the tremendous value that is in the infrastructure we built, it’s world-class infrastructure, it’s highly efficient and highly productive,” he said.

Power added that additional joint venture partners could be brought into the project, flagging Fortescue is aiming to lower its 61 per cent stake in the assets.

”We want to maintain a minority interest in the project, but with an interest now effectively at 61 per cent we do have some further opportunity, and of course we are 88 per cent within FMG Iron Bridge so there is certainly an opportunity for further investment by others in the project,” he said.

Stage one of the project is expected to take 12 months of construct, with first production expected in early 2015.

The first stage will see 1.5 million tonnes of hematite exported, with the second stage ramping up to see 9.5 million tonnes of magnetite concentrate piped to Port Hedland for export.

The deal is subject to approval from both Australian and Taiwanese regulators.$1-15bn-deal-gets-pilbara-project-up-a

Mine’s $90m boost to town

MORANBAH will be given $90million in infrastructure as the $3.5billion Caval Ridge mine takes shape nearby.

BHP Billiton Mitsubishi Alliance’s funds will upgrade Moranbah Airport, build accommodation villages, improve traffic management and redevelop the township’s aquatic centre.

Other community projects will also be included to benefit from the windfall.

The Queensland Co-ordinator-General approved BMA’s social impact management plan, which it was compelled to provide as part of Caval Ridge’s development.

Acting Premier Jeff Seeney said the programs ensured towns like Moranbah were not punished by major projects in the region. “In this instance, BMA will work with local and regional groups to mitigate potential social impacts and maximise the social benefits of the mine,” he said.

BMA will also build 160 dwellings and upgrade a further 185 in Moranbah.

Beyond its obligations to the Queensland Government, it will also donate $5million to build housing for lower-income workers not in the mining industry.

BMA will be reviewed annually by the Moranbah community to ensure its contributions are worthwhile and necessary.

In June Caval Ridge was described by BMA as being 48% built. Construction is expected to be finished in 2014.

Pilbara iron ore rail battle heats up

Fortescue has won its High Court appeal over access to Rio Tinto and BHP’s iron ore rail networks in the Pilbara.

The Australian iron ore miner had been fighting for access to Rio’s Hammersly and Robe River lines, as well as BHP’s Goldsworthy and Mount Newman networks.

In 2010 the long running battle came to a head when the Australian Competition Tribunal rejected Fortescue’s push for access to BHP and Rio rail networks, and allowed the two major miners to retain full access to their own Pilbara rail lines.

The Tribunal rejected the application by Fortescue Metals and a group of junior miners to gain access to the rail lines, finding that access by these miners to Rio’s Hammersley lines and BHP’s Newman rails “would be contrary to the public interest.”

The Tribunal’s inquiry found that the actual costs in providing access had the potential of dwarfing whatever benefits might exist from avoiding duplication of lines.

However, despite this the Tribunal did find in favour of the applicants for access in regards Rio’s Robe River railway and BHP’s Goldsworthy line.

Fortecue continued in its fight to gain full access to the Pilbara network, and was granted a High Court appeal late last year.

In its appeal FMG made technical arguments about the court’s interpretation of the law.

The High Court has now found that the Tribunal’s decision was not legal, according to the ABC.

This has now allowed Fortescue to again pursue access to the Pilbara rail lines.

Graham Short, from AMEC, explained there is still some way to go before a decision on access is reached.

“There’s obviously still further negotiations to be conducted and, as I understand it, it would still need to go through various tests so that it would be considered by the Australian Competition Tribunal.”

Rio Tinto came out against the decision, however it did note that it was “pleased to note that the High Court accepted its formulation of the proper test for the threshold question of whether a facility can be economically duplicated.

“The Minister and the Tribunal both applied the wrong test in determining this threshold issue, and the Tribunal will be bound to adopt the test Rio Tinto argued for on any reconsideration.”
Rio went on to add that its “integrated operations in the Pilbara would be severely impacted if third parties were permitted to run trains on the system. As the Tribunal noted, the potential disruption and diseconomy costs would dwarf whatever benefits might exist in permitting third party access”.