Reuters Australia
Three Chinese groups eye Fortescue stake - report
Monday May 12, 09:30 PM
(Adds additional Fortescue comment in paragraphs 5,14, updates shares to close)
By James Regan
SYDNEY, May 12 (Reuters) - Chinese state-owned steel firms reportedly want to buy a stake in Australian iron ore miner Fortescue Metals Group Ltd (ASX: FMG.ax) , the latest overture by Beijing to wield more control over raw material supplies from the Australian outback.
However, two of the three Chinese firms named as potential buyers by The Australian newspaper on Monday said they were unaware of any plans to buy Fortescue shares.
The newspaper reported that Sinosteel, Chinalco and Baosteel 600019.SS were looking at a 16 percent stake in Fortescue that U.S. boutique fund Harbinger Capital Partners was considering selling.
The stake is worth around $3.9 bilion, based on Fortescue's latest stock price.
"We're not denying it," Fortescue spokesman Paul Downie said. "We're not sure if Harbinger is a seller or not."
A statement issued later by Downie said there had been no indication Harbinger was seeking to sell its Fortescue stock.
Harbinger and Sinosteel could not be immediately reached for comment. Officials of Baosteel and Chinalco in Shanghai said they knew of no strategy to take a stake in Fortescue.
Fortescue closed 1 percent higher at A$9.27, matching gains in the broader market .AXJO.
The stock has more than tripled in the past year as iron ore prices have soared and as the company prepares to ship its first load of ore to China.
Any sale to a Chinese group is likely to require permission from the Australian government, which has raised concerns about foreign interest in the mining sector.
Australia's treasurer, Wayne Swan, has said foreign investment was welcome in Australian mining, though government-owned entities in China and other countries will be carefully scrutinised before any big investments can proceed.
Chinese steel mills' insatiable appetite for iron ore to feed strong demand as the economy booms has helped prices rise for six straight years, including a 65 percent gain in 2008 alone.
That, in turn, has raised the allure of Australian miners in the eyes of China's cashed up enterprises.
Baosteel, China's biggest steel maker, is set to take delivery of 170,000 tonnes of Fortescue ore on May 28, the first of 45 million tonnes the Australian miner has scheduled to ship to China this year.
Two additional shipments totaling up to 140,000 tonnes could also set sail for another Chinese buyer this week if load testing of two Panamax-sized vessels is completed, according to Fortescue spokesman Cameron Morse.
"The Chinese want iron ore wherever they can get it and Australia is the place to get it," said Eagle Mining Research analyst Keith Goode.
Chinalco, a Chinese aluminium maker that is looking to diversify into other raw materials, has bought 9.3 percent of sector heavyweight Rio Tinto Ltd/Plc (ASX: RIO.ax) RIO.L, Australia's largest iron ore miner.
Chinalco's $14 billion raid on Rio's London shares in February further complicated a hostile offer for Rio by Australia's BHP Billiton Ltd/Plc (ASX: BHP.ax) BLT.L, a merger the Chinese have opposed.
Another Australian iron ore start-up, Midwest Corp Ltd (ASX: MIS.ax) , recently recommended a A$1.36 billion ($1.3 billion) offer from Sinosteel.
Midwest and Murchison Metals Ltd MMX.AX plan to build railways and a port from scratch to tap vast reserves of iron ore south of Fortescue's properties in Western Australia. Sinosteel this month also purchased 2.4 percent of Murchison's stock. ($1=$1.06) (Additional reporting by Alfred Cang in SHANGHAI) (Editing by Kim Coghill)
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