Fortescue Metals Group has underscored the value of its Pilbara infrastructure assets, winning a $US500 million port access payment from Taiwanese conglomerate Formosa Plastics Group as part of a $US1.15 billion ($1.25 billion) development deal for its Iron Bridge magnetite project.
Analysts and investors had largely written off the value of Iron Bridge, the product of a move last year by Fortescue and China's Baosteel to consolidate their Pilbara magnetite holdings into a Hong Kong-based joint venture.
But yesterday's announcement put development of the project firmly back on the agenda for later this year or early next.
Under the agreement Formosa, Taiwan's biggest private company, will pay $US123 million for a 31 per cent stake in the joint venture. Formosa has also committed to pay the first $US527 million in capital needed to develop an initial 1.5 million tonne a year hematite mine, and will make a $US500 million payment directly to Fortescue for access to its Port Hedland infrastructure.
First shipments from Iron Bridge are expected by early 2015, by which time Formosa wants to start up a 22 million tonne a year steel mill at Ha Tinh in Vietnam.
Fortescue chief executive Nev Power said the infrastructure payment would go straight towards debt repayments as part of the company's bid to cut its gearing and secure an investment-grade bond rating. Mr Power said the payment would be made as soon as Formosa secured approval for its plan from the Foreign Investment Review Board and Taiwan's Investment Commission, with the green light expected by next month.
It is understood the access payment includes a fee for guaranteeing port access over the next three to five years, plus a pre-payment of port handling charges for Iron Bridge ore, which would be trucked 110km to Port Hedland.
Fortescue outlined development plans for the mine mid-last year, saying the first stage would move about 11.5 million tonnes of hematite ore over its life, although it is understood those plans have subsequently been updated and expanded.
The project's second stage, to which Formosa will commit $US1.05 billion in capital once development is approved, will export up to 9.5mtpa of magnetite.
As with other magnetite projects, Iron Bridge's second stage will require a multi-billion investment. Fortescue had previously said it was considering floating Iron Bridge on the Hong Kong stock exchange as a way of securing development funds.
Fortescue chief financial officer Stephen Pearce said yesterday an investment decision on the second stage was some time off. But he ruled out using Fortescue's balance sheet to develop the project, saying debt or equity would be raised by the Hong Kong entity if required.Fortescue fell 17Â¢ to $4.03.