Fortescue is on the prowl for investors once more. It has somewhere between $11 billion and $12 billion in debt and most analysts reckon it needs to knock this down by $5 billion at a minimum.
Chairman Andrew Forrest has said he wants to ramp up the companies production from its present reduced target of 115 million tonnes to 155 million tonnes by the end of next year, and that will take billions of dollars more.
The miner wants to sell down stakes in assets, rather than equity in the parent company. Forrest has always been loath to water down his controlling share and reckons that the group is worth more than the sum of the parts. Hence the strategy of selling minority stakes in individual projects. The argument is that this helps release more value for shareholders.
The Solomon power plant, and another 25 per cent of its BCI Iron joint venture, which have already been sold and on Monday Fortescue admitted that it is looking for a possible investor in its port and rail assets and there are a range of other assets could also be available to minority investors at the right price: such as its Chichester mining hub, the Solomon mine, yet-to-be developed west Pilbara tenements, the Northstar magnetite project and other sundry assets like airstrips and miners accommodation.
“The indicative value (of our assets) is far removed from our market capitalisation or enterprise value,” Forrest told me this week “We are quite happy to entertain minority partners to share in the growth with us.”
Forrest is about to find out whether he is right about the value of his assets as he looks for up to $10 billion to bring down debt in case the price of iron ore falls below $100 – the level which will start to cause the company problems due to its high production and interest costs.
Naturally China has been his first port of call. State owned Hunan Valin owns a touch over 15% of the company and China’s steel mills take about by about 95% of Fortescue’s iron ore. The Chinese originally had a tilt at grabbing control of Fortescue but failed.
Last month Forrest took an entourage – including his Macquarie Bank advisers – for a rare week in Beijing. This included schmoozing fellow super-rich at the first ever China Philanthropy Forum where he spoke. He was back in the Middle Kingdom again last week attending a heavy weight business conference on the resort island of Hainan.
Still the Chinese are not the only game in town. The Koreans, Japanese and Taiwanese will all be interested too but it would be a risky game to deal the Chinese out if they want in.
Forrest’s other problem is that the company’s share price has been surging, rising 30% since September as the iron ore price has risen back over $120 amid signs of further stimulus for China’s slowing economy. He would probably argue that its got a way to go but hedge funds, which had shorted the company successfully earlier this year, may see it differently.