Fortescue approves $8.5b

Pilbara expansion

Barry FitzGerald
November 19, 2010 – 12:02PM

Andrew Forrest’s Fortescue Metals has given the go-ahead for an $US8.4 billion ($8.5 billion) expansion of its Pilbara iron ore operations.

The expansion from 55 million tonnes to 155 million tonnes-a-year is to be financed by bank or bond market debt facilities, cash reserves and cash flow from operations.

‘‘I would anticipate that we would take on an additional $US4 billion of debt to see us fund the expansion,’’ chief financial officer Stephen Pearce said.He said funds would be raised well in advance of the company’s requirement for capital spending.

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The final mix of external debt and cash flows will depend on iron ore price movements. At present, the Pilbara iron ore producers are enjoying boom time prices of more than $US150 a tonne for the steelmaking raw material.

The cost of the expansion – at an effective $US84 per annual tonne – is a lower cost than most analysts think is possible. The biggest Pilbara iron ore producer Rio Tinto recently said $US130 a tonne for new capacity was now the case in the Pilbara.

“This decision will enable Fortescue to leverage its existing infrastructure and its massive land holding across the Pilbara to exponentially increase product sales within key markets of Asia, Europe and Australia,” Mr Forrest said.

“After years of planning for the next phase of development, the depth of management experience and breadth of construction and operational expertise will enable Fortescue to rapidly achieve its growth ambitions within a sector that is underpinned by an extraordinary demand profile,” Mr Forrest added.

Iron ore is already Australia’s biggest export earner. Exports in 2010-11 have been estimated by ABARE at $47.7 billion. At current prices, the additional production Fortescue is targeting is alone worth $15 billion.

Pilbara iron ore production is also immensely profitable, with costs for the big three producers – Rio, BHP Billiton and Fortescue – coming in at less than $US30 a tonne. Iron ore, along with coal, is subject to the Federal government’s mining tax.

Fortescue was 1 cent lower in recent trade.

with AAP


Sourced & published by Henry Sapiecha

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