Fortescue, Facing Deadline, Continues Funding Talks

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30 Sep 2009

Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, is still holding talks with Chinese lenders for $6 billion of project funding ahead of a self-imposed deadline tomorrow.
“We are continuing to progress expansion finance negotiations,” Cameron Morse, a spokesman for the Perth-based company, said today by telephone. “We will update the market at the earliest opportunity.”
Fortescue, controlled by billionaire Andrew Forrest, set Sept. 30 as a target for the financing in August when it agreed to a 35 percent cut in contract iron ore prices with Chinese steel mills. China, the biggest buyer of the ore, has invested in more than $56 billion of projects globally to try to reduce dependence on Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world’s three-largest exporters.
“There is too much in favor of the deal,” Grant Craighead, managing director of Stock Resource, a Sydney-based mining and energy research group, said over the phone. “At worst, they might extend the time frame.”
Fortescue plans to use the funds to more than double exports by 2012 to take advantage of forecast gains in prices.
The company declined 0.3 percent to close at A$3.90 on the Australian stock exchange. It doubled this year.
‘Tight on Cash’
The company started shipments to China in May 2008 from its A$2.8 billion ($2.4 billion) project in Western Australia. It shipped 27 million tons of ore in fiscal 2009.
Fortescue in 2007 flagged expansion plans with a target of as much as 200 million tons. The company said in April expansion plans had been put on hold because of a cash squeeze.
Standard & Poor’s Ratings Services and Moody’s Investors Service cut their ratings on Fortescue’s debt in the past month because of the expansion delays.
The company is “tight on cash” and needs additional capital this half, Morgan Stanley analysts said in a Sept. 2 report. An expansion to 98 million tons may cost as much as $4 billion, the broker forecast.
Fortescue has liabilities of $554 million maturing this half and a further $178 million due next half, according to Morgan Stanley. It had cash of $654 million as of June 30 and debt of $2.8 billion, according to an Aug. 10 presentation.

Source: Bloomberg