Fortescue hit by revelations in Australian court

29 April 2009

Shocking revelations by an ex-employee of Fortescue Metals Group to an Australian court will strengthen the case filed by the country's watchdog against the miner and its chief executive Andrew Forrest for misleading the market in 2004 and 2005, claiming to have signed "binding contracts" with three Chinese companies to build and finance its Pilbara iron-ore project.

Andrew Forrest had claimed in 2004 and 2005 that Fortescue had ''binding contracts'' with the China Metallurgical Construction Corporation and China Harbour Engineering Corporation to build mining, rail and port infrastructure in its Pilbara iron ore project in Western Australia.

Based on press releases by the miner and these bullish statements, which were repeated 11 times between August 2004 and March 2005, the stock prices of the company soared, but came crashing down on 24 March 2005, when The Australian Financial Review reported that these contracts were suspect.

The report dislosed that the the company had no such ''binding contracts'' but had signed only ''three framework agreements'' and was still negotiating with the Chinese companies to further these agreements to something more substantial.

The Australian Securities and Investments Commission (ASIC)had filed a case in the Australian Federal Court in Canberra against Fortescue and Forrest for deliberately misleading the market on its so called ''binding deals'' with Chinese companies and thereby creating a bullish run on the company's stock.

ASIC is seeking millions of dollars in penalties and debarring Forest from holding the chief executive post of the company.