FMG-Vale MoU sends media into a spin

THE BOURSE WHISPERER: Fortescue Metals Group (ASX: FMG) sent the fourth estate into a whirl with news it had signed a non-binding Memorandum of Understanding with Brazilian multinational diversified metals and mining company Vale S.A.

FMG didn’t really let much slip about the MoU, except to say the two companies have agreed to pursue long term opportunities to create additional value for customers in the Chinese steel industry while enhancing the competitiveness of their operations.

The agreement proposes Vale and FMG striking up a number of Joint Ventures with the aim of blending selected volumes of iron ore from both companies to create a product attractive to the needs of the long term needs of their customers and improve the efficiency of the supply chain to the steel industry.

“The Memorandum of Understanding will allow us to work together to deliver long term value to our customers, through the efficient supply of an attractive and competitive new iron ore blend in China,” Fortescue Metals Group CEO Nev Power said in the company’s announcement to the Australian Securities Exchange.

The sentence that started journos salivating, however, was the one that stated the agreement would provide a framework for potential investment by Vale in Fortescue through a minority acquisition of shares on market and/or investment in current or future mining assets.

The speculation was rife as to what – in terms of how big an investment – that all meant.

FMG sought to hose everybody down with a later release acknowledging that some media reports claiming Vale may buy up to 15 per cent of Fortescue’s capital on-market and potentially invest in its existing and prospective mines.

Fortescue clarified what it hadn’t mentioned in its earlier release – that the MoU contemplates an acquisition of its listed shares of between 5 per cent and 15 per cent as agreed between the parties.

Fortescue reminded everybody who is in charge by reminding all involved that it, “is aware of its continuous disclosure obligations to the ASX and the ongoing commitment to update the market, if and when, there are matters to disclose.”

So there.