[Updated] Fortescue, Vale Tie-Up Won't Proceed

bulk carrier

By Reuters 2016-12-19 02:20:43

Australian iron ore miner Fortescue Metals Group said on Monday its proposed tie-up with larger Brazilian rival Vale to customize orders for Chinese steelmakers will not proceed.

Vale, the world's No. 1 iron ore miner, and Fortescue, the world's No. 4, said in March they were in talks to blend up to 100 million tons of their ore in China, in a deal that could also have led to Vale taking a stake in Fortescue.

The aim was to win a bigger share of the Chinese market by matching the quality of the ore produced by Australia's Rio Tinto, which is seen as the local benchmark.

"We had very constructive discussions with Vale, but just were not able to reach commercial terms," Fortescue Chief Executive Nev Power said.

"While we are disappointed we weren't able to do a deal, our ore is already very well accepted in the market, so we can also blend with other companies."

The venture would have also given Vale an option to buy between five and 15 percent of Fortescue's shares on market and take stakes in Fortescue's existing or future mines.

Rising iron ore prices, coupled with cheap shipping and fuel costs, pushed the need for a deal to the sidelines, according to Power.

Iron ore has enjoyed a remarkable 2016, bouncing around 85 percent from where it started the year and more than doubling from February's low point of around $38 a ton.

"Shipping and bunkering rates are at all-time lows, meaning for now South American producers such as Vale have become more competitive against Australia for exporting to China," Power said.

The unraveling of the deal comes as Fortescue on Monday took delivery of the first of eight custom-built iron ore carriers aimed at giving it greater control over the timing of shipments to China.

The ships will eventually carry about 12 percent of the 165 million tons of iron ore that Fortescue ships annually.

Three more freighters are under construction at China's Yangzijiang Shipyard and a further four are being built at the Guangzhou Shipyard International.