Fortescue stakes an interest in shale

Hot option: Oil Basins is firing.FORTESCUE Metals Group says its surprise diversification into shale oil and gas is an attempt to secure energy for its iron ore business, rather than a punt on finding the next boom commodity.

Fortescue stunned investors on Thursday when it confirmed it was close to buying an 18 per cent stake in tiny Australian shale aspirant Oil Basins.

While the proposed investment was financially tiny at $4.2 million, the symbolism of Fortescue’s first move beyond iron ore loomed large given the widespread acceptance in recent months that the peak of the iron ore boom has passed.

Shale, on the other hand, is one of the boom areas of the resources industry, and the OBL deal would give Fortescue exposure to the part of Australia nominated by BHP Billiton as the nation’s most prospective for shale: the Canning Basin.

While not yet binding, OBL said the deal was expected to be finalised within five working days.

Company spokeswoman Yvonne Ball said sustaining the company’s iron ore business was the prime motivation.

”Fortescue’s existing operations use a large amount of energy in the form of diesel and potentially natural gas. It is appropriate that we consider our long-term energy requirements,” she said ”If we do finalise an agreement with Oil Basins, this modest investment would form part of this strategy.

”While the potential gas resources are still to be proven in the Canning Basin, it is adjacent to the Pilbara and could potentially be a source of low-cost energy for our existing operations.”

The move to secure energy supplies in the Pilbara comes just months after Fortescue sold a power station during a short-lived funding crisis.

Credit Suisse analyst Matthew Hope said Fortescue has previously sought – without success – to gain exposure to the energy sector.

The value of Oil Basins’ shares rose more than 35 per cent to 4.1¢ on the back of the news, and corporate regulators may be interested to note the stock rose by more than 10 per cent on each of the two days before the announcement.

Fortescue shares shed 1 per cent, closing 4¢ lower at $3.96.

The original release of this article first appeared on the website of Hangzhou Night Net.

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