Trading halted in Fortescue Metals: more cash from China on the way?

08/13/2009 11:55 am EST


Jim Jubak

Founder and Editor,

Trading in Australian iron ore miner (and Jubak's Pick) Fortescue Metal (FSUMF.PK) has been halted in anticipation of the release of news on Monday that the company has completed a  ''commercial negotiation''.

Speculation in Australia is that the news will be that China's sovereign wealth fund, China Investment Corp. (CIC), has decided to invest $1 billion into Fortescue. CIC, rumors go, will get convertible bonds in exchange for its cash.

The new money would go a long way toward funding Fortescue's goal of expanding producton to an annual 95 million metric tons by sometime in 2012. Production is now running at a rate of about 35 million tons a year.

Reaching production of near 100 million tons (which would put the company a solid third among the world's iron miners behind Vale (Vale) and BHP Billiton (BHP)) is essential for the company to reach a scale that it would let it bring down production costs to the levels now enjoyed by its bigger competitors.

Industry analsyts estimate that reaching a 95 million ton annual production rate would cost Fortescue$3 billion. Right now the company has about $650 million in cash.
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