Fortescue Reviews Legal Status of Contracts

Submitted by Share Trading on 17 December, 2008 - 14:15

Fortescue Metals Group (FMG), an Australian mining company has announced that, it is reviewing the legal status of their shipping contracts as a result of the disagreements developed from the decision of suspending two-third of its long-term shipping contracts.

Fortescue has suspended all its long-term cost and freight (CFR) shipping contracts. The company has said that, it has looked for legal advice on the 10 shipping contracts involved and that suing buyers will be a waste of time as it won't get the money for the shipments immediately and will make the buyers look elsewhere. Morgan Stanley, an analyst has said Fortescue looked to have struck contracts at rates well above current prices.

The company in a statement said “Each of the ten (10) contracts that have been actioned, need to be considered on their specific facts and merits as Fortescue will use all the appropriate legal mechanisms for determining the disputes that have arisen between some of the parties and any future disputes that may arise. Fortescue will continue to update the market if there are any material developments” and “Fortescue will use all the appropriate legal mechanisms for determining the disputes that have arisen between some of the parties and any future disputes that may arise”.

The mining company has earlier said that the new arrangement of increasing freight on board (FOB) sales was a result of market conditions that demands greater FOB sales which would not affect the volume of iron ore that it shipped. The global recession has lowered freight rates from the cost that has been seen earlier.

As a result of this announcement, the company’s shares have lost 10% or 27c to $2.36. It is estimated that Fortescue might have reserved several years of freight in early 2008 at rates of $US20 per tonne of iron ore whereas the freight cost in China currently stand at $US2.50 to $US3.00 per tonne.

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