Formosa Plastics Group (FPG, 台塑集團) will invest US$1.15 billion in a joint venture in Australia led by Australia-based Fortescue Metals Group Ltd to secure iron ore to supply to its new steel mill in Vietnam.
Under the deal, the Taiwanese group will acquire 31 percent of shares of the FMG Iron Bridge Joint Venture, while FMG Iron Bridge Ltd, which is jointly owned by Fortescue and China-based Baosteel Group Corp (寶鋼), is to obtain a 69 percent stake, Fortescue said in its filing to the Australian Stock Exchange.
The joint venture aims to develop an iron ore mine of 1.5 million tonnes per year by the beginning of 2015, followed by the second stage of the project to expand the mine to produce 9.5 million tonnes more of iron ore per year, according to Fortescue.
The investment includes an upfront payment of US$500 million to Pilbara Infrastructure Ltd to access Fortescue’s Herb Elliott Port under separate infrastructure access arrangements, Fortescue said.
“Based on our shares, starting in 2015, Formosa Plastics Group can acquire 465,000 tonnes of iron ore a year from the project to supply our Formosa Ha Tinh steel mill in Vietnam,” an official of the Taiwanese group, who declined to be named, said by telephone yesterday.
“We are also considering investing in a coal mine in Queensland, Australia to provide coal to the steel mill,” he said.
The Formosa group also agreed to purchase 3 million tonnes of iron ore a year at market prices from the mine to supply its steel mill in Vietnam, according to Fortescue’s filing.
“The successful development of the FMG Iron Bridge Project is of strategic importance to Formosa. We believe that this investment will secure a substantial long-term resource to complement the Group’s manufacturing activities,” Yang Hung-chi (楊鴻志), president of Formosa Ha Tinh Steel Corp (台塑河靜鋼鐵公司), said in a press release.
The deal is still pending approvals from the Australian Foreign Investment Review Board and Taiwan’s Investment Commission, which are expected next month, according to Fortescue.
Formosa Plastics Group said in December last year that it planned to invest US$10 billion to build Formosa Ha Tinh Steel mill to produce 7 million tonnes of steel a year by May 2015.
The group said at the time it would expand the mill’s annual capacity to between 20 million tonnes and 22 million tonnes if its sales go well.
The Vietnamese steel mill will require at least 10 million tonnes of iron ore a year starting in May 2015, according to the group.