Fortescue Metals Group Ltd (FMG.AX), Australia's third-biggest iron ore miner, plans to raise an unspecified amount of capital this week as it seeks funds for its expansion.

Fortescue halted trading in its shares on Monday as it prepared for the raising, with the Australian Financial Review reporting Fortescue planned to raise A$500 million ($322.4 million) by selling new shares to institutional investors and Chinese steel maker Hunan Valin Iron and Steel.

A source close to Fortescue said a share sale was one option being considered but a final decision would be taken by Wednesday.

The source, who declined to be identified as the discussions were confidential, said the company would continue to explore more ways to raise funds.

This deal is not necessarily exclusive or mutually exclusive of the other ones. There are proposals for joint ventures at the asset level, the source added.

Fortescue had quite a lot of unsolicited interest from a lot of different people on a wide variety of different proposals. There have been other companies from China and other companies outside of China as well as Valin, the source added.

Last week Fortescue said it had held talks with several parties, including mining giant Anglo American (AAL.L) and China's sovereign wealth fund, China Investment Corp.

Fortescue appointed JP Morgan, Azure Capital and Grant Samuel to help it review the approaches.

Fortescue needs to raise money to help fund the expansion of its mine and port facilities to more than double its production capacity to 120 million tonnes a year. And analysts say Fortescue needs much more than just A$500 million.

It may be more than A$500 million, which seems low given their infrastructure needs to expand, DJ Carmichael & Co analyst James Wilson said.

Construction of a 70-km (43.5-mile) rail line to connect the company's Christmas Creek lode with Fortescue's main line hauling ore to the western coast is yet to be completed and is likely to cost around A$200 million alone, according to Wilson.

The Australian Financial Review report also said that JP Morgan and Southern Cross Equities would lead manage the share placement.

Fortescue spokesman Cameron Morse would not confirm nor deny the newspaper report. Fortescue shares last traded at A$2.83, giving it a market value of about A$8 billion.

Citing unnamed sources, the newspaper also said Valin was in talks to buy part of the 15.9 percent stake in Fortescue held by U.S. hedge fund Harbinger Capital, which has been looking to sell down its stake in Fortescue over the past 18 months.

Harbinger bought the stake for around A$180 million before Fortescue went into production last May.

Valin was not immediately available for comment.

Fortescue's largest shareholder is founder and chief executive, Andrew Forrest, with about 35 percent.

Fortescue, a distant third in size to Australia's two biggest iron ore miners, Rio Tinto Ltd/Plc (RIO.AX)(RIO.L) and BHP Billiton Ltd/Plc (BHP.AX)(BLT.L) may face sharply lower revenues from iron ore sales if analysts forecasts for price drops by as much as 60 percent ae correct.

Steel production in China, where Fortescue sells all its ore, and elsewhere in the world, is declining, reducing demand for raw materials. ($1=1.55 Australian Dollar) (Additional reporting by Sonali Paul and James Regan; Editing by Mathew Veedon)© Thomson Reuters 2009 All rights reserved