Iron ore firm Fortescue soars on China investment talk

GMT 06:46 2015 Tuesday ,26 May

Arab Today, arab today Iron ore firm Fortescue soars on China investment talk

Price of iron ore has tumbled 60%
Sydney - AFP

Shares in Australian iron ore giant Fortescue Metals soared almost 13 percent on Tuesday on speculation that two of China's largest companies are poised to pump money into the struggling miner.

Fortescue is one of the world's four big iron ore exporters, along with Australia's BHP Billiton and Rio Tinto and Brazil's Vale, but has been battling slumping prices for the steel-making commodity.

The Australian Financial Review reported that China's largest steelmaker Baosteel and its biggest conglomerate CITIC had held talks with Fortescue about an investment to help shore up its balance sheet.

China is Australia's largest market for iron ore and the news sent Fortescue shares surging as much as 12.90 percent to Aus$2.49 in morning trade.

The Financial Review said there were no moves to take over Fortescue, but the two companies were interested in buying a stake, with the Foreign Investment Review Board reportedly approached seeking permission for an investment.

Fortescue released a statement saying it does not comment on speculation.

"Fortescue is not aware of FIRB applications by third parties and is in compliance with its continuous disclosure obligations," the company said.

Morningstar resources analyst Mathew Hodge said the share price boost could be attributed to the Chinese investment speculation as well as a two percent spike in the iron ore price to $US61 a tonne.

"A lot of the leverage in this stock is sentiment-driven," Hodge said. "The idea that Chinese might invest, maybe that helps them out."

He added that Fortescue had too much debt and was probably considering selling a stake in some mines, infrastructure or equity.

"This is a single commodity producer without a cost advantage that's got a lot of debt," he said.

Fortescue chief executive Andrew Forrest has in recent weeks spearheaded a drive for the Australian government to hold an inquiry into the nation's huge iron ore industry.

He alleges that BHP and Rio have been flooding the market, driving down prices, to wipe out smaller competitors.

BHP and Rio both deny this and the government on Thursday ruled out a parliamentary probe.

The price of ore has tumbled 60 percent over the past year, hitting a decade low of US$47.08 per tonne in early April.

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