Chapter 677 - Ore Negotiation
After spending an afternoon in the special district, the pair didn’t return to the company after dinner, but instead, they went to the only five-star hotel in the area.
It was a tender night.
The next day, although he wanted to sleep in while hugging the adorable girl, he had to wake up early.
Based on the schedule arranged by Jean, he would meet with BHP’s representative regarding a contract extension for iron and aluminum ore.
BHP’s President Luke arrived at the special district and met Jiang Chen at the headquarters.
“Mr. Jiang Chen certainly is ruthless. The development of Penglai was already on your desk when we met in Ber, right?”
While Luke had a smile on his face, Jiang Chen could still hear the displeased tone in his voice.
It was inevitable since Jiang Chen screwed him hard.
An aircraft carrier could carry up to 100,000 tons. Penglai’s consumption of steel and aluminum were equivalent to at least one hundred aircraft carriers. Imagine if UA announced construction plans for a hundred aircraft carriers – how would the iron and aluminum ore market turn out?
Especially since Future Group never said they only planned to build just one Penglai. If Penglai became successful, a lot of countries might become interested in something similar. If Jiang Chen ever considered exporting this marine city, orders would flood Future Heavy Industries.
Hua would definitely be the biggest buyer.
The reality was that compared to last year’s downturn in the metal ore market, iron and aluminum ores, in both future and spot markets, showed more substantial rebounds. The 80 million tons of supply contracts Jiang Chen owned no doubt timed the market at the floor price with an additional 20% off the floor price.
Luke had regretted signing the contract ever since but he couldn’t do anything about it. In order to maintain the credibility of his group, BHP had to take the loss.
While they agreed to take the loss, after supplying 40 million tons of ores to Future Group, if they wanted more, then that would be the time to talk about prices again!
“With the increase in iron ore prices this year, the original price is no longer suitable.”
“How much are you planning to increase it by?” Jiang Chen eyed Luke with a smile.
“Based on the current market price, we’ll give you a 10% discount.”
“Based on the current market price? Do you think I don’t know that you released a global iron ore production reduction report through the International Mining Alliance a week ago and raised the prices of iron and aluminum in future and spot markets?” Jiang Chen said with a grin.
Based on Jean’s data collection abilities, any published reports couldn’t escape her grasp. After analyzing the information, it wasn’t difficult to find the correlation.
Luke’s expression froze.
He didn’t think Jiang Chen, who was keen on the graphene market, would focus on the completely unrelated commodities market. Typically speaking, the International Mining Alliance report was only read by people within the industry, but to prepare for this negotiation, Jiang Chen did his homework well!
“85% of the market price; I can’t go any lower. It’s impossible to supply the ores at last year’s prices! If you agree now, we can sign the contract immediately,” Luke said.
Jiang Chen shook his head.
“The Penglai City project has consumed a total of 19.9 million tons of steel and aluminum and most of the steel and aluminum were consumed during the post-war reconstruction of MLL Island and the development of the special district. We have five deposits on MLL Island with proven reserves of over 40 million tons of iron ore, but there’s no mining plan yet. You don’t have too much bargaining chips on the table. Do you understand what I mean?”
Future Mining’s main project was seabed mining and the main outputs were molybdenum, manganese, copper, nickel, cobalt and other metals. The gross margins for mining iron and aluminum ore were too low, so even if there were a handful of iron mines that came from the Moro government, Future Mining had no plans to mine the reserves.
Luke’s eyes narrowed. His fingers lightly tapped the table as she pondered how to close this deal. Jiang Chen was observing him with a smile and waiting for him to compromise.
“You have iron reserves on MLL Island?”
“That’s right. They’re also high-quality iron mines around 67-68%. Not only are there iron ores, but there are also two aluminum reserves.” Jiang Chen smiled. “You should know. One year ago, with the constant conflict on the island, the investment environment was poor and the F government had no ability to develop the rich deposits. But now, the reserves are in our hands.”
Jiang Chen’s message expressed two layers of meaning. The first layer: we have deposits. If your price is higher than our development costs then we won’t dance with you! The second layer: Future Group is no longer the Future Group from last year – don’t expect us to compromise from external pressure. If I can handle the B City Consortium, I can easily handle you as well.
The silence persisted for a long time before Luke sighed.
“A ragged colt may make a good horse (1).”
“You know this Chinese proverb?” Jiang Chen laughed.
“I just learned it recently; I only know a little.” Luke dismissed the topic. “Let’s not get off track. I have a proposal that suits both of our interests.”
“Let’s hear it.”
“We have advantages in extraction, transportation, and management, and you already mentioned your advantages which are the resources on MLL Island and the influence in Moro. We could easily invest in a mining company in Moro with a 50% equity split. We’ll provide the manpower and technology while you’ll supply the reserves and be responsible for public relations. What do you think?” Luke leaned forward and lowered his voice.
BHP could keep the price of ores low, but it was limited by import and export tariffs, tax collections, environmental protections, and so on. As a result, the gross profit of iron and aluminum ores had been stagnant. If Future Group could, by virtue of its influence, reduce taxes and fees for the production and export of minerals from MLL Island, BHP Mining had great room for profit even if it supplied cheap minerals to Future Group.
“This is a great proposal.” Jiang Chen’s eyes lit up, intrigued by the idea.
The iron and aluminum deposits had been stagnated since Future Mining didn’t have additional resources to extract. This proposal was basically contracting the development to BHP Group while the two parties split the profits.
But just as Luke thought they reached an agreement, Jiang Chen’s tone took a huge turn: “But do you think your equity is too high?”
[This bloodsucker!]
Luke cursed in his mind, but his expression still remained calm as he debated with Jiang Chen. Finally, both parties settled on the agreement with Jiang Chen to supply 70 million USD and the reserves while BHP would invest 150 million USD. The equity proportion was 55% and 45%.
That was Luke’s bottom line.
Printing out the contract required time, so both parties agreed to officially sign the contract the next day. But based on the two parties’ reputations, it was unlikely that one party would back out of the deal. Therefore, the partnership between Future Mining and BHP had been secured.
Jiang Chen sensed a vibration on his wrist.
When Luke left, Jiang Chen pressed his watch and Jean’s hologram appeared beside the table.
“Is there something wrong?” Jiang Chen pleasantly spoke to Jean.
Because Jean was taking the minutes for the meeting, Jiang Chen opened the voice recording function so Jean could hear their conversation.
“I detected more advanced mining technology from the database; we could easily develop the resources by ourselves.”
Jiang Chen shook his head at Jean’s question with a smile. He casually stuffed the document into the drawer.
“We can’t make all the money in the world, and there’s no purpose in doing that.”
“From an efficiency point of view, is there a problem with my proposal?” Jean asked.
“Considering things from only an efficiency point of view is a problem in itself. Compared to extracting the last bit of profits, we can proactively gift out the profits and use this to chain more people to us in exchange for greater profits.”
“Greater profits? What’s that?”
“Regardless of what it is, it’s definitely not the US dollar.”
(1) A ragged colt may make a good horse – A young person can still be impressive.