Taiwan's diversified conglomerate Formosa Plastics Group today agreed to invest $1.15 billion for a 31-per cent stake in a new iron-ore project in Australia being developed by Fortescue Metals Group and China's Baoshan Iron & Steel (Baosteel).
Fortescue, the world's fourth-largest iron ore producer, said that Formosa Plastics would acquire the stake in its FMGIron Bridge joint venture project and fund the first stage of the development.
The FMGIron Bridge project is currently 88-per cent owned by Fortescue and 12 per cent by a subsidiary of Baosteel.
Under the deal, Formosa, Taiwan's largest private company, will through its subsidiary Formosa Steel IB Pty Ltd, acquire a 31-per cent stake in FMGIron Bridge for $123 million and fund the first $527 million capital expenditure on the project development.
This funding covers construction of stage one which will commence on completion of the transaction at an estimated cost of $340 million
Stage two would be funded by the balance of Formosa's initial funding, and contribution of the next $1.05 billion from FMGIron Bridge Ltd, followed by 31 per cent contribution from Formosa and 69 per cent from FMGIron Bridge Ltd.
Formosa, whose revenue from its domestic companies accounted for 13 per cent of Taiwan's GDP in 2012, has agreed to buy up to three mtpa of iron ore at market prices for its Tinh Steel mill when commissioned.
It will also prepay $500 million as upfront payment to a Fortescue subsidiary The Pilbara Infrastructure Pty Ltd for access to Port Hedland facilities, the word's largest iron ore terminal.
FMGIron Bridge owns the North Star and Glacier Valley iron ore deposits, located about 100km south of Port Hedland in Western Australia. The two deposits have combined iron ore resource of 5.2 billion tonnes.
The transaction is subject to Australian Foreign Investment Review Board and Taiwan Investment Commission approval.
Fortescue chairman, Andrew Forrest said, ''This transaction brings together Fortescue, Baosteel and Formosa Group, a company that looks set to become the new force in steel-making in south-east Asia. We are truly excited to be partnering with Formosa in this important next chapter of our mutual development.''
MrHung-Chi Yang, president of Formosa Resources Corporation, said, ''We believe that this investment will secure a substantial long term resource to complement the Group's manufacturing activities.''
Formosa is currently constructing a 22 million tonnes per annum mpta integrated steel mill at Ha Tinh in Vietnam.
The Greenfield Ha Tinh project is the largest of its kind in the steelmaking industry globally and the first of the company's six planned blast furnaces. It is expected to commence production in 2015.