Iron ore billionaire’s comeback king looks past China

After inking a surprise joint venture deal with the world’s top iron ore producer, Fortescue Metals Group Ltd. is setting its long-term sights beyond China, its biggest customer and the world’s top customer.
The tie-up of Australian billionaire Andrew Forrest’s company with Vale SA amounts to the emergence of a new iron ore power bloc, according to Macquarie Group Ltd. The accord, which allows for the Brazilian company to buy a minority stake in Fortescue and invest in existing or future mines, may help the world’s fourth-biggest producer eventually push into new markets to the west of China, according to Chief Executive Officer Nev Power.
Fortescue’s latest deal is another unexpected twist in the company’s roller coaster history since 2003 that’s been marked by disputes with regulators, governments and rivals, multiple debt and investor dramas and share price gyrations. The Vale pact was sealed this month after about a year of talks initiated by Forrest against a backdrop of slowing demand in China, the biggest buyer of iron ore.
“In the most difficult circumstances, he’s always ready to pull another rabbit out of the hat,” said Philip Kirchlechner, previously Fortescue’s head of marketing from June 2003 to May 2006. The pact is “quite a sophisticated idea because it is doing something more strategic and visionary,” said Kirchlechner, now Perth-
based director at Iron Ore Research Pty.
The accord partners, whose first priority is an ore blending joint venture in China, also have an eye on developing a pipeline of projects that could eventually feed steel demand driven by the demographic change likely to sweep through Central Asia to the Middle East, Fortescue’s Power said March 15 in an interview.
“We will be monitoring the market to look at what the demand curve looks like,” Power said. “While we are very focused on China and the developed regions of Asia at the moment, to the west of China we have all of central Asia, India and the ’stan countries, the Middle East and even Northern Africa, which is within a very efficient and competitive sea distance from Western Australia.”
Forrest founded Fortescue to tap China’s rapid industrialization even as larger rivals missed early indicators of a boom that saw crude steel output soar 12-fold between 1990 and 2014 as millions of people moved to cities and drove demand for homes, roads, cars and appliances.
From 2009 to 2015, Fortescue expanded full-
year shipments six-fold, a faster rate than any other major supplier in a frantic dash to meet China’s hunger for imports. The producer’s stock surged by more than 40,000 percent between the renaming of a predecessor company in 2003 through to a mid-2008 peak, the period when it sent a maiden shipment of 180,000 metric tons aboard the Heng Shan to China’s Baosteel Group Corp. MDT/Bloomberg