OAO Magnitogorsk Iron & Steel plans to wait for a recovery in the iron ore market to sell its 5 percent stake in Fortescue Metals Group Ltd.
Magnitogorsk is looking for higher prices, which may happen if there’s a merger between major iron ore suppliers that reduces some of the oversupply, Chief Financial Officer Sergey Sulimov said in an interview on Aug. 13. Without industry consolidation, low prices and slowing demand for the raw material used in steel production may persist for a decade, according to Sulimov.
“We are ready to wait for the next chance,” he said from Moscow. “The current value of the stake is close to what we have paid for it.”
Fortescue, the world’s fourth-largest iron ore miner, is trading near a six-year low after the shares plunged 35 percent this year. The company has been hit by a glut of iron ore around the world after the biggest producers expanded production in a bet on a higher demand from China, whose economy is now slowing down. Prices for iron ore are near the lowest since since at least 2009.
Magnitogorsk, controlled by billionaire Victor Rashnikov, started to built the stake in Fortescue in 2006 and was considering a sale in 2014.
The current market value of the holding is around $200 million, according to data compiled by Bloomberg. In the past, the company received offers of $1 billion, Sulimov said.
Magnitogorsk is benefiting partly from the decline in iron ore because it can buy the raw material, used in steel production, cheaply from suppliers, such as Kazakh Eurasian Natural Resources Corp. and Russia’s Metalloinvest Holding Co.
In March, Magnitogorsk returned the license to mine the Prioskolskoye iron ore deposit in central Russia back to the state, Sulimov said. It had bought the license in 2006.
Magnitogorsk may consider buying some distressed assets, including in coal. Sulimov said the company decided to keep and develop its OAO Belon coal unit, which supplies Magnitogorsk with as much as 40 percent of the coal it needs.
While the company looked into selling it last year, rising borrowing costs in Russia after sanctions prevented the deal as none of the bidders was able to pay the fair value for the unit, according to Sulimov.