As per the terms of the investment arrangement, Formosa will acquire a 31% unincorporated interest in the joint venture for $123m and fund the first $527m to develop the project.
The funds are expected to cover the stage 1 construction costs, estimated to be around $340m.
Formosa will also take part in the stage 2 development, currently subject to government approvals and joint venture sanction. Following its approval, Formosa would finance the stage 2 operations through the balance of Formosa’s initial funding, and an additional $1.05bn from the joint venture.
In addition, the Taiwanese company has agreed to purchase up to three million tons of iron-ore at market place every year, to supply its 22 million ton a year Ha Tinh steel mill, situated in Vietnam.
Formosa will have an option to prepay $500m upfront to Fortescue’s subsidiary The Pilbara Infrastructure Group to access the port facilities at Herb Elliott under separate infrastructure access arrangements.
Fortescue CEO Nev Power said that an investment of $1.5bn represents a potential step in the development of the Iron Bridge project.
Fortescue chairman Andrew Forrest said: "This transaction brings together Fortescue, Baosteel and Formosa Group, a company that looks set to become the new force in steel-making in south-east Asia. We are truly excited to be partnering with Formosa in this important next chapter of our mutual development."
Spanning over a period of 12 months, the stage 1 is estimated to produce nearly 1.5 million tons a year, of 66% iron product, starting in early 2015, while stage 2 will have a production rate of 9.5 million tons a year of a 68% iron magnetite concentrate and it is subject to joint venture approval and with construction to start in 2015.
