Oct 22 2004
Fortescue Metals Group Limited is pleased to announce the signing of a binding sales agreement with Ping Xiang Iron & Steel Co. Ltd (“Pingsteel”) which is a large regional steel mill in China.
FMG has secured a 22 year contract to supply Pingsteel with two million tonnes of iron ore per annum. The contract also includes the receipt by FMG of a prepayment amount of US$20 million in total to be paid in instalments being US$10 million in May 2005, US$5 million during construction and US$5 million on first shipment of iron ore.
The contract follows two recent announcements by FMG of separate binding agreements with Chinese counterparties and is further evidence of the customer’s commitment to facilitate the rapid development of the Pilbara Iron Ore and Infrastructure Project. FMG now has 8 million tonnes per annum under contract from customers that incorporate associated prepayments totalling some A$66 million. FMG remains focused on continuing to convert its existing memoranda of intent (“MOI’s”) with customers into binding sales agreements.
As background to the counterparty, Pingsteel is located near Piangxiang city in the Jiangxi Province in southern China. The Jiangxi Province is one of China’s most important coal mining districts and associated industries like iron and steel production have developed strongly around this raw material supply hub.
Pingsteel has been in the iron and steel business since 1954, originally as a Government owned enterprise but then privatised in 2003. It currently produces 4 million tonnes of iron and steel products on an annual basis, employs 13,000 people and has an asset base of some US$600 million. Pingsteel’s president Mr Tu is highly regarded in China’s iron and steel industry having overseen the transformation Pingsteel to a privately owned entity and having achieved significant profit growth averaging 48% over the last few years.
FMG believes that the progressive increase in the number of binding contractual counterparties together with the increasing financial contribution that these parties are providing by way of prepayments, further underwrites the development of the Company as a major force in the world iron ore market.
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