Fortescue Metals closed up six cents on Friday’s close at $2.17 a share yesterday afternoon – 7 cents cents off the high of the day at $2.22.
But news this morning in the AFR that “Chinese-linked companies have applied to the Foreign Investment Review Board seeking permission for an investment involving Fortescue Metals Group,” already has a small 300 lot bid for FMG shares queued to buy at $2.31.
The buying is not apparently not a takeover bid according to the AFR, which reckons the likely buyers are one of either “China’s largest steel producer, Baosteel, and China’s largest conglomerate, CITIC.” The aim of the buying is to recapitalise and shore up Fortescue’s balance sheet.
As a result, the market talk is naturally about Fortescue, which should see its stock price rise as a result.
Coming a week after China made a stunning intervention in the iron ore market by bank-rolling BHP and Rio Tinto’s only real global competitor, Brazil’s Vale, it seems the real targets are Australia’s two mega-miners.
Clearly the senior managers of the Chinese economy believe the end game for BHP and Rio Tinto is to dominate the iron ore landscape and thus achieve real pricing power in the decades ahead, so they are moving against them. By solidifying the balance sheet of Fortescue Metals and taking a larger, strategic, possibly blocking stake on any future moves on the Fortescue share register the Chinese ensure a major Australian competitor remains viable for the long run.
Equally, by helping Brazil’s Vale increase its productive capacity and means to get that production to market via Vale’s huge Valemax ships the Chinese are ensuring a massive global competitor as well as increased price pressure.
China is playing a long game and it seems they have BHP and Rio in their sights.