Highlands Pac signs up China Metal
By Jamie Freed
April 1, 2005
Signing a four-page framework agreement at a fancy reception in Western Australia does not mean a deal with Chinese companies is complete, as Fortescue Metals learned last week.
But Highlands Pacific said it hoped a 150-page master agreement with the same Chinese company signed at Papua New Guinea's Parliament House yesterday carried more weight.
Fortescue Metals shares tumbled more than 40 per cent last week after state-owned China Metallurgical Construction Corp suggested the framework agreement for Fortescue's $1.85 billion West Australian iron ore project signed last August was not binding.
Fortescue has since released four-to-five page agreements with CMC and two other state-owned companies to the ASX, with chief executive Andrew Forrest insisting they were binding.
Highlands Pacific shares rose 2c to 53c yesterday after it signed a master agreement to give MCC an 180-day option on 85 per cent in Highlands' Ramu PNG nickel and cobalt project in return for supplying 100 per cent of project development funds, estimated at $US650 million ($841 million).
Highlands Pacific managing director Ian Holzberger said it was "very comfortable" the deal would go forward. "[It] has been a very detailed 12-month assessment and negotiation process," he said. "There are no more details of the joint venture to be determined."
Highlands has worked with the PNG government to get tax advantages which Mr Holzberger said could clinch the deal.
Highlands would have 8.56 per cent carried free, rising to 11.3 per cent with an option, at market price of another 9.25 per cent after project debt is repaid.
Critics have said that Fortescue may have publicised its deal with MCC too heavily in its initial stages, leading to the massive share price drop when uncertainties came to light.
A Highlands Pacific spokesman said his company consciously took a different path when dealing with the Chinese.
"They didn't want to promote this too quickly," he said.
There is speculation that Fortescue's 44 per cent share price decline might trigger an investigation by the Australian Securities and Investments Commission.
ASIC could also look into Mr Forrest's $13 million sale of 3 million shares at $4.50 each in February; the shares closed at $3.10 yesterday.
Mr Forrest holds 47 per cent of Fortescue shares, down from 48 per cent before his February sale.