Fortescue Sees Vale Joint Venture Completed in Near Future

  • Much laboratory test work completed: Fortescue CEO Power
  • Producer says now sits at end of iron ore’s global cost curve

Fortescue Metals Group Ltd. is optimistic its iron ore blending project with Brazil’s Vale SA, the world’s top iron ore exporter, may be completed soon as better demand in China supports a price rally this year.

“We’ve completed a lot of laboratory test work and that has been very positive and we are now working on a technical and commercial solution,” Fortescue Chief Executive Officer Nev Power said Wednesday in an interview with Bloomberg Television. “We are hopeful of coming up with a finalized plan for that in the near future.”

Vale and Fortescue signed an accord in March to blend their differing ores, a pact that’s seen making the Brazilian producer’s higher-quality output more marketable and raising the value of the Australian miner’s product. The blended ores would boost competition by offering a rival product to benchmark offerings from competitors Rio Tinto Group and BHP Billiton Ltd. Vale said in May it remained cautious on a timetable for delivering product into the market.

Benchmark iron ore prices have jumped 33 percent this year, rallying from three straight annual declines. Prices have been supported by increased steel demand in China driven by the property and infrastructure sectors, Fortescue, the No. 4 shipper, said earlier in a statement. The producer’s shares advanced 7 percent to A$4.41 in Sydney, the highest since August 22, 2014.

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Fortescue is targeting a reduction in C1 cash costs to as low as $12 a wet metric ton in the next 12 months. The producer could have lower C1 costs than larger competitors Rio and BHP, if it meets the targets and continues to improve productivity, Macquarie Securities (Australia) Ltd. analysts,including Perth-based Hayden Bairstow, wrote Wednesday in note to clients.

“Today, we are right at the bottom end of the cost curve.,” Power said in the interview. That allows us to have very solid cash flow margins even at lower iron ore prices.”

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