Australia's Fortescue Metals Group (FMG.AX: Quote), which until now has focused exclusively on sales to China, is in talks to sell iron ore to European steel mills, Executive Director Graeme Rowley said on Thursday.

We are negotiating that right now, Rowley told Reuters.

Australia's third-largest iron ore miner this week won approval after a lengthy government review for one Chinese customer, the state-owned Hunan Valin Iron and Steel Group, to take up a 17.55 percent direct interest in the company for $438 million.

Rowley also said Fortescue was open to joint venture investments in certain mine projects to help fund its expansion plans in the ore rich Pilbara region of west Australia, and did not rule out further investment by its Chinese customers.

If China's got the money, there's nothing wrong with China's money, Rowley said.

Investment by state-owned Chinese firms in the mining sector is coming under scrutiny in Canberra, where a proposed $19.5 billion investment in Rio Tinto (RIO.AX: Quote)(RIO.L: Quote) shares and businesses is under review by the Foreign Investment Review Board.

Another Australian miner, OZ Minerals (OZL.AX: Quote), hopes to proceed with the sale of most of its assets to China's Minmetals after complying with an order by Treasurer Wayne Swan to exclude a copper mine located near a military installation from the sale.

Australia has nothing to fear from China, Rowley said, adding Hunan Valin would help the company ride out a rough patch in the commodities cycle by increasing ore purchases.

Part of this is to reach a bigger offtake (supply) agreement, he said.

Federal opposition parliamentary frontbencher Tony Abbott told Sky News on Thursday China was maintaining a well-known surveillance network in Australia, and was motivated by its own national self interest.

Rowley said investments from China would help underpin plans to expand production to 45 million tonnes a year from 39 million tonnes currently, eventually taking output to 55 million tonnes and higher.

Additional production would enable Fortescue to widen its sales into Europe, where steel mills are ready buyers of the lump-type ore mined by Fortescue, according to Rowley.

Rowley also said he was bracing for a 30-40 percent drop in negotiated world iron ore prices this year. This is in line with some analysts' forecasts and expectations by Rio Tinto iron ore chief executive Sam Walsh. (Editing by James Thornhill)

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