Fortescue Metals is in talks with Chinese steel company, Hunan Valin Iron & Steel, over a possible investment in the iron-ore miner.
Fortescue announced on Thursday morning "pending corporate transactions'' while Valin said talks were in a very early stage.
After naming Chinese sovereign wealth fund China Investment Corporation and global miner Anglo-American as potential investors in the company yesterday, Fortescue reiterated today it ''has had discussions with a range of parties.''
The company said all discussions so far were ''incomplete'' and it didn't want to disclose any details before an agreement was reached. ''Interest in the company has never been stronger,'' a spokesman said, declining to elaborate.
Valin will take an initial stake of about $500 million in the company, according to a report in today's Australian Financial Review. Valin is backed by CIC.
However, Valin said today it has concerns over the debt level of Australia's third-largest iron ore producer.
"We haven't hired a banker on this because the talks are still in a very initial stage," Valin's general manager Li Jianguo said today in an interview in Beijing. "We do have concerns that they have rather high debt levels and the financial risks are quite big."
The steelmakers should be prudent in making decisions, said Zhou Xizeng, a Beijing-based analyst with Citic Securities Co. "The strategy is clear and right for China to buy mining assets overseas because the prices may be near the bottom."
A move on Fortescue would be the latest by a Chinese company on Australian mining assets. State-owned Minmetals earlier this week offered to pay $2.6 billion to take over OZ Minerals, while Chinalco is planning to pump as much as $US19.5 billion ($30 billion) to raise its stake in Rio Tinto to 18%, and grab control of some key Australian operations.
The infusion of capital will give the Perth-based mining group the funding needed to complete the expansion of its new port facilities and railway needed to boost ore exports.
"They (Chinese companies) have very good access to very cheap funds and with a long-term view they are probably making very good investment decisions," Alex Passmore, head of metals and mining research at Patersons Securities in Perth, said today.
Fortescue was in talks with Hunan Valin Steel Tube to form a strategic alliance, specialist website Custeel.com reported in November.
Source: Sydney Morning Herald
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