WA: FMG statements not misleading to canny investors, court told

AAP General News (Australia)
04-07-2009
WA: FMG statements not misleading to canny investors, court told

By Andrea Hayward and Rebecca Le May

PERTH, April 7 AAP - Fortescue Metals Group boss Andrew Forrest and his executives
did not mislead investors by overstating agreements with Chinese parties, a court has
heard.

The Australian Securities and Investments Commission (ASIC) alleges the Pilbara iron
ore miner made misleading and deceptive statements about the nature of deals with three
state-owned Chinese companies in 2004.

On the second day of a five-week hearing, Fortescue's lawyer John Karkar, QC, said
Mr Forrest and his executives were entitled to conclude binding agreements had been entered
into.

The agreements required further negotiation and a commercial outcome was never reached.

"We say in the end, having regard to what happened, investors were not misled," Mr
Karkar told the Federal Court in Perth on Tuesday.

The financial market understood the agreement with China Railway Engineering Corporation
(CREC) "to be conditional" on completion of certain studies, although this information
was not included in an August media release, Mr Karkar said.

He said the validity of the announcement was reinforced by the fact CREC had not only
reviewed the draft version, but also made amendments.

"The announcements were approved by CREC.

"There can be no question that CREC participated in approval of the media release in
the form that it was."

Mr Karkar said CREC had been keen to convert the agreement into a memorandum of understanding
(MoU), but it felt rushed as the transaction first needed to be approved by Chinese regulators.

"Interest ... came from the Chinese. The evidence to that effect is overwhelming," he said.

Citing several media reports, Mr Karkar said the common investor would have taken the
commentary into account.

"In short ... the media thought the announcements were light on detail," he said.

"We would submit the common investor with knowledge of the facts would understand that
plans for the project were in their infancy and that Fortescue's achievements had hitherto
been preliminary.

"That is the context in which the announcement about binding ... contracts were made.

"We say, in the end, having regard to what happened, investors were not misled."

Mr Karkar said it was common knowledge the framework deals would be supplemented with
further agreements.

This was because media reports and analyst research - issued prior to the announcements
in question - had described Fortescue's project as being in the early stages with many
milestones ahead.

Mr Karkar said if necessary Fortescue could demonstrate the contracts to build and
finance various parts of the project's infrastructure were regarded as binding.

But neither Mr Forrest nor the other directors were lawyers and "no reasonable layman
would be expected to know the intricacies of the law of contracts", he said.

He said the seven per cent jump in Fortescue's share price that followed the company's
August 23, 2004 announcement was not "statistically significant".

Fortescue and Mr Forrest face maximum civil penalties of $6 million and $4.4 million,
respectively, if the action is successful.

AAP ah/jl/apm

KEYWORD: FORTESCUE WRAP

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