Fortescue fails to meet Chinese financing deadline

Perth-based Australian miner Fortescue Metals Group Ltd (Fortescue) has announced today that it has failed to secure a funding deal with Chinese banks and missed today's deadline to raise as much as US$6 billion to finance its expansion of its mine, port and rail projects.
 
The deadline today was part of the company's massive iron ore price agreement with Chinese steelmaker Baosteel Group and the China Iron and Steel Association (CISA). Securing the completion of financing by September 30, 2009 was a condition of the landmark agreement in question which committed Chinese steel mills to acquire approximately 20 million wet metric tons from Fortescue for the period between July 1 and December 31, 2009. The amount of the funding was estimated by Fortescue to be in the range of US$5.5 billion to US$6 billion.
 
In a statement to the Australian Securities Exchange today, the company has said, with regard to its agreement announced on August 17, 2009 with Chinese steelmaker Baosteel Group and the China Iron and Steel Association (CISA), that the condition relating to the completion of finance by today will not be met in time.
 
Fortescue has also added that it intends to continue working cooperatively with the CISA, including the provision of attractive iron ore pricing if requested.
 
Fortescue's plans were to use the funds in question to more than double exports by 2012. In May, Chinese steelmaker Hunan Valin Iron and Steel Group, Fortescue's second largest shareholder, said that the company might need between US$3 billion and US$4 billion to proceed with its plans.
 
According to the agreement, the agreed Chinese price for all Fortescue iron ore sold to Chinese mills for the period July 1 to December 31, 2009, represented a 35.02 percent drop for ore fines compared to last year and a 50.42 percent drop for ore lumps. Therefore, China secured a price cut for fine iron ore from Australian miner Fortescue Metals which was better than the 33 percent that other major Asian steelmakers signed with Australia's BHP Billiton and Rio Tinto, and Brazil's Vale, but lower than the 40 percent cut the CISA previously sought.
 
Under the agreement, the CISA also guaranteed that priority would be given to Fortescue in negotiation of iron ore prices for 2010, if the annual pricing negotiations are again conducted.