China’s Baosteel and CITIC have reportedly held talks with Australian miner FMG on an investment. If such a deal is confirmed, FMG could be able to pay down its debts and reduce costs, it key goal to remain viable during the current price downturn, Kallanish notes.

The Australian Financial Review also reports that Chinese companies have applied to Australia’s Foreign Investment Review Board about investment, but did not confirm that this was Baosteel and CITIC.

FMG has cut its breakeven to $39/tonne on a 62% Fe basis, of which around $4/t is financing costs. Reducing this cost could ensure it remains profitable even if prices drop sharply in the third quarter, as many analysts predict. FMG has paid down debt rapidly in the last two years but hit a wall earlier this year when a $2.5 billion bond issuance failed.

The company has already received significant support from Chinese steelmakers. Hunan Valin is a major shareholder and Chinese mills have been willing to pay significant sums for their iron ore up front, ensuring FMG’s cash flow. Baosteel has also supported FMG through a 12% investment in FMG Iron Bridge, a Hong Kong-based FMG subsidiary. Taiwan’s Formosa Plastics Group also has a 31% stake in FMG Iron Bridge.

For Baosteel, an investment in FMG could come as a replacement in the short term for its delayed investment in the West Pilbara Iron Ore project. The 30 million tonnes/year mine investment was delayed due to low prices but is expected to be brought online at a later date once iron ore prices recover. Both the Pilbara and now the potential FMG investment would give Baosteel a level of independence from their reliance on the iron ore majors, analysts note.