Fortescue Metals Group Ltd. (FMG.AU) said Wednesday its iron ore pricing and funding deal with China has lapsed after a deadline passed but that it continues to hold talks with the Chinese.

Failure to finalize the US$6 billion financing deal by the Sep. 30 deadline puts Fortescue's expansion plans in question, although market participants say a deal may still be possible as China seeks to promote new sources of iron ore supply for its key steel industry.

It also adds even more uncertainty to China's 2009 iron ore term settlement, which remains in limbo, at a time when spot prices are again on the rise, reaching $92 a metric ton Wednesday, according to Metal Bulletin data.

The miner said Aug. 17 it had struck a deal with the China Iron & Steel Association, or CISA, to sell iron ore to Chinese steel mills at a 3% discount to prices agreed between other miners and their Asian customers.

The agreement was conditional on the arrangement of finance from Chinese lenders to underpin Fortescue's plans to boost output from its iron ore operations in the Pilbara region of Western Australia.

A spokesman for Fortescue said the deal had lapsed as the condition of funding had not been met but that the company continues to hold talks with CISA, and that FMG remains open to all funding options.

"There was never any pretense that any financial organizations had agreed to a set deadline," he said. "There is no change whatsoever to FMG's (expansion) plans and FMG and CISA are continuing discussions," he said, adding there is no deadline attached to the new discussions.

Fortescue has been selling ore to Chinese mills at the discounted price since July 1 and the miner said it would be up to the Chinese to request a continuation of this pricing regime.

"Fortescue intends to continue working cooperatively with CISA including the provision of attractive iron ore pricing if requested," the company said in a statement.

Comment from CISA wasn't immediately available Wednesday, however several of FMG's Chinese steel clients said they were not aware the Aug. 17 iron ore contract carried a funding condition.

"We know that CISA and Baosteel will help Fortescue to get some financing from China, but we've never linked this with the iron ore contract," a major state-owned steel company executive told Dow Jones Newswires Wednesday on the condition of anonymity.

Meanwhile, the local-language Caijing Magazine reported on its Web site Wednesday that Chinese sovereign-wealth fund China Investment Corp. has halted funding talks with Fortescue due to risk issues.

"It's unlikely to reach any financing deal (with Fortescue) in the near term," an unnamed CIC executive told the magazine, saying the two sides couldn't reach an agreement on some risk-related issues.

When asked if funding negotiations are with CIC, the Fortescue spokesman declined to comment Wednesday, saying that negotiations remain confidential.

Fortescue had hoped that striking a deal to sell iron ore to China at a discount to its other major producers would help secure $6 billion in funding for the junior miner.

The bulk of the funding Fortescue is hoping to get from China comes in the form of loans from Export-Import Bank of China, a policy lender.

CIC, the country's $300 billion sovereign wealth fund, has held talks with Fortescue about potentially buying debt securities on a much smaller scale than the loans from China Exim Bank. Those talks started before Fortescue struck the deal with CISA, according to earlier Fortescue statements and a person close to CIC.

Fortescue said in a filing Feb. 24 that it had entered negotiations with CIC for a hybrid funding package.

According to the person close to CIC, the Chinese wealth fund and FMG aren't close to a deal and CIC is maintaining its independence in striking deals from other parts of the Chinese government.

Unlike CIC, whose mandate is focused on earning returns from its investments, China Exim Bank has an explicit policy function in supporting the central government's policy aims.

CIC officials weren't immediately available for comment. China is observing an eight-day holiday break starting Thursday for its National Day and the Mid-Autumn Festival, with many government offices and companies this week dismissing employees early.

The Fortescue pricing agreement had been a face-saving deal for CISA, which failed to extract the price cut it was seeking in a tense stand off with the world's biggest iron ore miners. Fortescue's annual capacity currently is equivalent to about 7.5% of China's estimated iron ore import volume for this year.

While Fortescue's output is growing, its production is still dwarfed by the big three iron ore producers - Anglo-Australian miners Rio Tinto Ltd. and BHP Billiton Ltd. and Brazil's Vale - and its pricing deal with CISA was dismissed by the majors as irrelevant to their contract price negotiations.

Those talks stalled after CISA refused to accept the 33% price cut Rio Tinto agreed with steelmakers in Japan, Korea and Taiwan, although Chinese mills are still paying this price for their ore under provisional pricing arrangements.

Spot prices had slid steeply from mid-August to early September, briefly lending support to CISA's argument for a deeper term discount.

The failure to ink a financing deal weighed on FMG's shares, which closed down 2.1% to A$3.82, with the broader Australian market down 0.2% Wednesday.

But some of the disappointment was already factored into the share price, with the departure of the company's chief financial officer, Michael Minosora, last week prompting market speculation the miner would struggle to bed down the giant financing package on time.

-By Alex Wilson and Juan Chen, Dow Jones Newswires; 61-3-9292-2094; alex.wilson@dowjones.com

(Ross Kelly in Sydney, Juan Chen and Chuin-Wei Yap in Beijing, and Rick Carew in Hong Kong contributed to this article.)