Australia's Fortescue Metals Clinches Chinese $1.6 Billion Backing and Orders for Pilbara Iron Ore Mine

---

Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Backing a major Chinese foray into the Australian iron ore mining industry are some of the largest international and Australian project contracting and consulting companies. In November 2004, Fortescue Metals Group (ASE:FMG )(Perth, Australia) signed binding contracts with two major Chinese companies centered on the Pilbara iron ore mine in Western Australia.

China Railway Engineering Corporation (CR) committed in August to finance and construct the largest component of the $1.66 billion project. This is the rail line from Port Hedland to the proposed mine site in the Chichester Ranges. The rail contract will cover the construction of the heavy-haul open-access line and associated rolling stock.

The latest two agreements were with China Metallurgical Construction Corporation (CM) for the financing, design, and construction of the mine at the Christmas Creek site, and with China Harbor Engineering Corp (CH) for the finance, design and construction of the large scale works at Anderson Point in Port Hedland, to handle the FMG mine's shipments. The work on the port project will cover the dredging, train unloading, ore stacking, blending, and ship loading facilities at FMG's export outlet.

Signatory partners to the construction projects include ThyssenKrupp (Xetra:750000) (Essen, Germany), ABB (NYSE:ABB ) (Zurich, Switzerland), Barclay Mowlem (Pymble, Australia), Leighton Contracting (ASE:LEI ) (St Leonards, Australia), and BGC consulting (Vancouver, British Columbia)

FM's CEO said that the three contracts would now limit the company's initial financing requirement to less than 10% of the total project cost with the balance covered by prepayment commitments. He said that these commitments from customers provide cost effective finance that does not have an equity dilution effect for existing shareholders in FMG. "The construction funding significantly enhances the economic value of the project by de-risking the development phase - often an issue with greenfields project financing," he said.

The first batch of log term binding contracts announced provides for delivery of eight million tons of iron ore per annum out of an estimated 45 million tons production per annum. The contracts keep FMG on track for a 2007 start to operations.

Preliminary drilling indicated the mine could expect a 20-year life, with a simple beneficiation process yielding a product exceeding 60% iron, depending on the chosen mine cut-off. First resource estimates for the lead Chichester Range tenements totaled 744 million tons of Pilbara Marra Mamba mineralization, with an average grade of 56.39% iron in the ground.

Driven by Chinese demand, FMG has a strategy to become the owner of iron ore reserves and a provider of necessary infrastructure. This will include bringing into production many of the stranded ore resources presently existing in the Pilbara region. The company currently has a major drilling program to delineate reserves at Mount Nicholas and is involved in a 50/50 joint venture with Consolidated Minerals at Mindy Mindy among a number of projects in the region that contain significant iron ore mineralization.

The three Chinese corporations in the project are all state owned. CM has broad industrial interests and had revenues of over $3 billion in the last financial year. It has 60 branches worldwide. CRE had $9.25 billion of work in hand before the FMG contract and has 40 years of major rail and civil engineering in China and CH has annual revenues of about $2.7 billion and a fleet of more than 800 specialist harbor vessels.

View Project Report - 86000471

Industrialinfo.com is the leading provider of global industrial market research. We specialize in helping companies develop information solutions to maximize their sales and marketing efforts.