Hebei Iron & Steel Group Co. and Tewoo Group Co. have approached Fortescue Metals Group Ltd. about acquiring a stake in the iron ore producer’s infrastructure assets, people with knowledge of the matter said. Fortescue jumped as much as 10 percent in Sydney, the most in more than two months.
The state-owned Chinese firms are separately talking to Fortescue about investing in the infrastructure serving its operations in Western Australia’s Pilbara region, the people said. They may also consider buying stakes in some of Fortescue’s mines, for a total investment of about $1 billion to $2 billion in the Australian firm’s assets, two of the people said, asking not to be identified as the information is private.
Fortescue, controlled by billionaire Andrew Forrest, said in March it would consider selling minority stakes in mines, railroads and ports. Iron ore prices have tumbled to the lowest since at least 2009 as the largest suppliers, including Rio Tinto Group, expanded production just as economic growth slowed in China. Fortescue closed 6.2 percent higher at A$1.885. Rival Rio Tinto Group gained 1.9 percent.
“The market is responding to news of the Chinese interest,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said by phone. “A deal that would allow it to cut its debt would help solve the biggest headache investors have with Fortescue.”
Australia’s third-largest iron ore producer, which has $7.2 billion in net debt, abandoned a previous plan to sell a stake in its infrastructure assets in 2013 after saying the offers it got didn’t meet its objectives for value and terms. In March it sold $2.3 billion of bonds after halting an earlier, larger offering amid the rout in commodity prices.
Talks with the Chinese firms are at an early stage and may not result in a deal, the people said. Representatives for Hebei Iron & Steel and Tewoo declined to comment.
“Whilst there is no imperative, Fortescue is open to commercial discussions with a range of groups on a regular basis at the mining asset level,” the company said Wednesday in a statement. “There is no agreement of such nature with any party at this time.”
Fortescue, which has a market value of $4.3 billion, has held talks with Baosteel Group Corp. and Japanese firms about selling a stake in some of its mines, people familiar with the matter said in June.
Hebei Iron & Steel, China’s largest steelmaker by production capacity, produced 47.1 million metric tons of steel and booked sales of 280.6 billion yuan ($45.2 billion) last year, according its website.
State-owned Tewoo, based in the northern Chinese port city of Tianjin, runs businesses including commodities trading, logistics, financial services and real estate. It had 114.8 billion yuan of total assets at the end of 2013, its website shows.
Iron ore with 62 percent content delivered to Qingdao declined 0.6 percent to $55.29 a dry metric ton on Tuesday, according to Metal Bulletin Ltd.