SYDNEY – Debt-heavy Australian iron ore miner Fortescue Metals Group could find willing investors in Chinese steel mills anxious to ensure multiple sources of supply for the raw material, a senior Chinese government official said on Thursday.
Media reports this week said Fortescue - already about 15%-owned by Chinese steelmaker Hunan Valin - has held talks with Chinese industrial conglomerates CITIC and Baosteel Group. Fortescue said only it was not aware of any parties seeking regulatory approval to take a stake in the company.
Li Xinchuang, vice secretary general of the China Iron & Steel Association, said Chinese steel producers were a natural fit to help Fortescue compete through price cycles with mega-miners Vale, Rio Tinto and BHP Billiton .
"The key for them is to have a good partner to help them pay their money back," Li told Reuters on the side of a business conference.
Fortescue relies almost exclusively on sales to China for its revenue.
Li predicted the ore price was unlikely to budge much from its recent price range, averaging between $55/t to $65/t this year and would go only slightly higher in 2016.
That's more bullish than Citigroup, whose annual average price forecast is $40/t over 2016-2018.
Fortescue in April refinanced $2.3-billion of its $9-billion in gross debt on a third attempt, but was forced to pay a higher yield amid investor concerns about the state of the iron ore market.
It is facing repayments of $6.3-billion in 2019 and the company in recent weeks has reiterated a willingness to consider fresh investors in its mines or support operations, such as rails and ports.
Iron ore fell to a decade-low of $46.70/t in April and even at just above $60 currently, is less than half of last year's peak.
Fortescue in April said it had improved its total delivered cost by 17% on the prior quarter, and was targeting a break even price of $39/t.
Li also forecast total Australian iron ore imports to China in 2015 would rise by 30-million tonnes to 600-million this year over 2014.
This was not surprising given higher production targets set by Rio Tinto and BHP this year, as well as Fortescue.