Chief executive helps lift miner’s profile

The ascendancy of Fortescue Metals Group from a high-risk concept stock a few years ago to emerging world-scale iron ore producer owes much to the vision of Andrew Forrest, the Australian miner’s maverick chief executive and largest shareholder, write Peter Smith and Javier Blas.

Formed in 2003, the miner only began digging for iron ore three years ago before making its first shipment to China in May last year.

Many doubted Australia’s self-styled “new force in iron ore” would make it to the big league as it fought through a series of financing rounds to build an ambitious port, rail and mine infrastructure in the Pilbara region of Western Australia on the doorstep of heavyweight compatriots BHP Billiton and Rio Tinto.

But a mixture of luck, good timing and the relentless pursuit of opportunities in China have secured Fortescue’s position.

Now the miner is hoping to play a surprise leading role in the annual iron ore talks, one of the most important price negotiations for the global economy as the cost of ore filters into steel prices and into the price of goods such as cars and washing machines.

For the first time in its history, Fortescue on Monday switched from being an iron ore “price taker” to a price maker in another sign of its ascendancy.

The most critical change, however, could still be to come. Beijing on Monday guaranteed Fortescue “priority” in next year’s annual price talks – a spot in the past reserved for Vale of Brazil or Rio Tinto, the world’s largest ore miners.

More important for the long-term outlook for iron ore prices, some believe the Fortescue deal could weaken the grip of Vale, Rio Tinto and BHP Billiton over mineral prices.

With up to $6bn of finance coming from China by September 30, there is little doubt the Australian mining group is on the cusp of announcing ambitious development plans.

The company is currently hoping to hit a 45m tonne annualised run rate by the first half of 2010 and it has said it would like to reach 95m tonnes as part of its next development stage.

However, the credit line would allow the miner to go beyond 95m tonnes, a figure that will see the Australian mining group significantly close the gap on its bigger rivals. BHP, third in the seaborne iron ore trade, produced less than 130m tonnes of iron ore in its most recent financial year.

Xianfang Ren, of consutants IHS Global Insight in Beijing, said the financing terms embedded in the deal reflect “what could be a long-term shift in China’s iron ore import structure that may rely less on iron ores supplied by Fortescue’s rivals”. If that is the case – and many mining executives remain highly sceptical – China might use Fortescue to cap the aggressive price increases sought by the big three. For the moment, Fortescue seems happy to be used as a wedge.

Is this the future for Noront?Just replace iron ore by nickel and chromium add some (hidden) finance and the main players are faced with a dilemma.Interesting times ahead!

Respectfully,

Inca.