MMK Said to Start Cutting Fortescue Stake as Shares Advance

  • Fortescue jumped last week after it reached pact with Vale
  • MMK had about 5% in Australian miner Fortescue before sale

Magnitogorsk Iron & Steel OJSC, the Russian steelmaker controlled by billionaire Victor Rashnikov, is starting to reduce its stake in Fortescue Metals Group Ltd. to take advantage of its rising share price after the Australian producer signed an accord with Vale SA and iron-ore prices rebound.

The company has already sold a small portion of its holding in Fortescue, two people familiar with the matter said, asking not to be identified as the information isn’t official. MMK, as the steelmaker is known, sold a 0.64 percent holding in the Australian miner for A$51 million ($38 million) through UBS Group AG, the Australian newspaper reported on Tuesday, without identifying the sources. MMK’s press service declined to comment.

MMK started to build its holding in Fortescue in 2006. Before the recent sale, it held about 5 percent in the the world’s fourth-largest iron-ore miner, a stake valued at about $300 million. MMK was waiting for prices of the steelmaking ingredient to rise before trying to sell, it said in August.

Iron ore has advanced in 2016, surprising many forecasters who’d expected a fourth year of losses driven by a global glut and slowing demand for steel in China, the largest user. Ore with 62 percent content delivered to Qingdao rose 28 percent this year.

Fortescue, which plunged to the lowest since 2008 in January, jumped more than 26 percent on March 7 before its announcement on an accord with Vale SA that could see the Brazilian company take a minority stake in the Australian miner owned by billionaire Andrew Forrest. The agreement also allows the companies to form joint ventures and develop new mines. The shares have declined more then 17 percent since than.

Fortescue "is still meaningfully below its historical levels,” George Buzhenitsa, an analyst at Deutsche Bank AG, said in a report. “In this context, the deal looks like an attempt to book cash at the time the sector enjoys some price momentum.” MMK spent about $200 million to build the stake, he said.

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