FMG warns Rio and BHP to play nice with China

Andrew “Twiggy” Forrest has warned that BHP Billiton and Rio Tinto are risking Australia’s bilateral relationship with China by flooding the world market with iron ore.

Speaking at Fortescue Metal Group’s annual general meeting in Perth, Forrest questioned the miners’ decision to continue with rapid expansions of their operations despite falling demand.

He said the plan by BHP and Rio seemed to be aimed at forcing their rivals to shut up shop, including Chinese producers, and warned this tactic could create tension with Australia’s biggest iron ore customer, The Australian reported.

“They have said they’re out to restrict the growth of other companies and restrict other opportunities being brought into the marketplace by their competitors,” Forrest said.

“To me I think that’s a very fine line to tread when your major customer is one of those people you are trying to shut out of the market.

“I wouldn’t have thought it’s a very customer-friendly policy and I only hope that it doesn’t have any impact on the bilateral relationship with China which is very strong.

“No doubt they have their underlying wisdom — they just haven’t shared it with the rest of the market.”

The comments come as the price for iron ore continues to lag, sitting at around $US75 a tonne, a drop in value of more than 40 per cent since the start of the year.

This has had a huge effect on the share price of smaller miners, including FMG which has seen a 36 per cent decrease in the company’s share price.

Yesterday FMG closed below the $3 mark for the first time this year, losing a further 2 per cent to close at $2.96.

To this end, Forrest said plans were afoot to diversify the company into other commodity markets.

A total of six commodities are being investigated by the company, one being the oil and gas market, SMH reported.

"It is one of about six different commodities we review all the time and we have plans both mature and immature in several different industries," he said.

Forrest said with the mineral sector suffering blows across the board this year, it was a good time to shape up a deal for the right project.

"If you look at the whole resources sector – copper, oil, uranium, gas – the whole resources sector is down so it is strength in weakness where the greatest opportunities are.”

"Are there great opportunities out there, that's really the question, not that we are seeing yet but we are a patient company."

FMG is on track to produce a total of between 155mt to 160 mt of iron ore in the current financial year.

Dropping its costs to $US32 a tonne, the miner said it is targeting efficiencies across all its sites.

This is not the first time the company has criticised its iron ore rivals.

In October FMG chief Nev Power said BHP and Rio were employing a flawed strategythat aimed to “trash the market and then somehow make returns after that”.

"But I think everybody would know that is a flawed strategy that has been tried by people for countless years with little success."

Power said the strategies could see the heads of top companies roll if shareholders lose out.

“Investing because you’re more profitable than the next guy seems to be a very flawed strategy to me and one that will inevitably lead to self-inflicted wounds, low returns to shareholders, and probably replacement of management teams like we’ve seen in some of those companies in the past," Power said.

At yesterday’s meeting, Power said FMG had posted a record year, and remained confident in growth out of China as the country continued with economic reforms.

"Your company has had a cracker of a year, and while we are in the middle of a low spot in the market at the moment, and there has been something of an overshoot on the supply side, the fundamentals on demand remain strong," Power said.

Image: ABC

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