Fortescue closing in on asset sale?

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From the AFR:

Iron ore prices have retreated to a two-month low, which has been blamed partly on iron ore traders in China enjoying a week long national holiday.

So it was curious that Fortescue Metals Group was the second best stock on the ASX-S&P 200 index on Tuesday, surging 5.9 per cent to $1.97.

It raised fresh speculation that Fortescue boss Andrew “Twiggy” Forrest was inching closer to a long talked-about deal to sell part of its mines, rail and port infrastructure.

Talks are said to have firmed with Hebei Iron & Steel, one of half a dozen Chinese groups linked to discussions with the miner over a potential deal that could raise as much as $4 billion.

A source close to Fortescue said a deal was not imminent but negotiations remain live.

There was nothing at all unusual about the FMG jump yesterday. The two big miners were up sharply as well and it’s a regular pattern for FMG to outperform. It was a massive mining risk on day anyway.

Perhaps Hebei is interested in massively overpaying for rapidly deflating Pilbara assets. After all, Baosteel did it last year in Aquila. But there is surely a limit to Chinese SOE stupidity.

Following Sunday’s media speculation of a similar asset sale for Glencore succeeded in pushing its share price up 21% the AFR might as well try it on.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.