Aug. 16 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third-biggest iron ore exporter, said Formosa Plastics Group agreed to invest $1.15 billion in a planned project in Western Australia that includes Baosteel Group Corp.
Formosa will acquire a 31 percent interest in the FMG Iron Bridge joint venture for $123 million and will provide the first $527 million to develop stage one of the project, 100 kilometers (62 miles) south of Port Hedland, Perth-based Fortescue said today in a statement.
FMG Iron Bridge Ltd., jointly owned by Fortescue and a unit of China’s Baosteel, owns the North Star and Glacier Valley iron ore deposits, which have a combined resource of 5.2 billion metric tons, Fortescue said. Taiwan’s Formosa agreed to purchase as much as 3 million tons a year of iron ore at market prices to supply a steel mill under construction at Ha Tinh, in Vietnam, the statement said.
“The successful development of the FMG Iron Bridge project is of strategic importance to Formosa,” Hung-Chi Yang, President of Formosa Resources Corp., said in the statement. “This investment will secure a substantial long term resource to complement the group’s manufacturing activities.”
Fortescue declined 3.3 percent to A$4.06 at 1:38 p.m. in Sydney trading. The stock has fallen 13 percent since the start of the year.
First production of 1.5 million tons a year, which will be trucked to Port Hedland, may begin in early 2015, Fortescue said. Formosa will prepay $500 million upfront to Pilbara Infrastructure Ltd. to access Fortescue’s Herb Elliott Port under separate infrastructure access arrangements, Fortescue said. The company is currently in talks for a potential stake sale in its port and rail facilities in order to cut debt.
“The $500 million that will be paid to Fortescue as part of the transaction will be put towards debt reduction,” Fortescue Chief Executive Officer Neville Power, said on a call with reporters. Fortescue was looking at the talks for the rail and port stake sales and the Formosa deal “completely separately,” Power said.
Australia is the world’s biggest exporter of iron ore. Fortescue in January last year said it was in talks with potential partners to help develop the North Star deposit.
The deal is subject to approvals from the Australian Foreign Investment Review Board and the Taiwan Investment Commission, which are expected to be completed next month, Fortescue said in the statement. Formosa is due to pay $500 million to Fortescue when the deal closes, Chief Financial Officer Stephen Pearce said on the call.
Stage two of the project is dependent on government and venture approval and will be funded by the three companies, according to the statement. The second stage may cost $1.5 billion to build, Power said on the call.
Deutsche Bank AG advised Fortescue and Formosa was advised by Australia & New Zealand Banking Group Ltd.
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