China withholds FMG approval

China has withheld its approval of Hunan Valin's FMG bid.

A Chinese planning agency has surprised the mining industry by withholding approval on Hunan Valin Steel’s bid for 17% of Fortescue Metals Group.

According to several media reports, officials at the National Development and Reform Commission are worried the conditions imposed by the Australian Foreign Investment Review Board (FIRB) set an unfavourable precedent that may fetter other Chinese investments, particularly Chinalco’s bid for 18% of Rio Tinto.

The FIRB’s conditions ensure the directors Valin appoints to the Fortescue board can not use pricing information against the Australian company in iron ore contract negotiations.

Fortescue is now unlikely to ink the deal as hoped at this weekend’s Boao Forum for Asia, which is modelled after the World Economic Forum and promotes regional economic integration.

Chinese industry sources say the commission’s foot-dragging illustrates mounting concerns about investment in Australia.

Chinese officials are said to be closely monitoring the actions of Fortescue including its chief executive Andrew Forrest who is currently in court defending Australian Securities & Investments Commission allegations that he misled the market over the company’s dealings with Chinese companies.

Despite the turmoil surrounding the iron ore miner, Forrest has continued to partake in expansion talks with Chinese investors.

Last month, Forrest met with China’s Export-Import Bank president and chairman Li Ruogu.

The miner confirmed it had been in talks with the bank in a bid to boost its future mining capacity to 120 million tonnes a year.

Any funds raised by Mr Forrest from Exim Bank would be in addition to the $645 million injection from Hunan Valin.

Fortescue continues to struggle to lift production at its Pilbara iron ore operations, where it hopes to boost the capacity rate to 45 million tonnes a year by the end of this year.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.