Thursday, 15 November 2012 09:11
An upbeat Fortescue Metals Group has reassured shareholders that the outlook for Chinese demand and iron ore pricing was strong, after a volatile year of heavy falls in stock value and commodity prices.
When iron ore prices plunged 36 per cent in a month to below US$90 ($86.68) a tonne in September, fears were raised that the company would breach its loan covenants because of its heavy debt load.
Now that prices have risen to above $US120 a tonne again - a level at which Fortescue is comfortably profitable - the iron ore miner is once again considering an increase in capacity to an ambitious 155 million tonnes a year from a current 64mtpa.
Although iron ore prices are not expected to return to last year's record highs above US$190 ($183) a tonne, Fortescue is keen to expand and benefit from what chief executive Nev Power has called a volumes rather than prices-led boom.
Chairman Andrew Forrest said that despite China's economic growth stalling, amid a difficult year for the company, he forecast Chinese growth rates returning to their high levels of recent decades.
"I feel sure that while we have had great years and excellent economic performance out of China for the past 30 years, the next 10 years will be the best that we have seen from China," Mr Forrest told reporters outside the company's annual general meeting in Perth.
"It will maintain within 1-2 per cent (of) the growth rates of 7 to 8 per cent."
China's recently appointed new generation of leaders was committed to growth, he said.
Fortescue, Australia's third-largest iron ore producer, responded to September's price plunge by restructuring US$5 billion ($4.82 billion) in debt - from a total of US$12.7 billion ($12.23 billion).
No repayments are now due for three years and the miner cut about 1000 jobs and pulled back its planned expansion to 115 million tonnes a year from 155mtpa.
However, it still posted a record net profit of US$1.56 billion for the fiscal year.
The spectre of the company's high debt remains, with a report on Wednesday stating that Fortescue had enlisted Macquarie Capital to find if other miners were interested in buying part of the company's rail-port infrastructure, in an effort to ease the debt burden.
The company confirmed it had had strong interest but said in a statement that any assets sales would be transacted only at full and fair market value.
Mr Power reiterated his view to shareholders that the current US$120 a tonne price for iron ore was sustainable and the company would decide next month if it would restart construction at the Kings mine and increase its expansion by 40mtpa to 155mtpa.
Part of the criticism levelled at Fortescue in recent months has related to its production of poorer-quality ore at a higher cost than the majors Vale, BHP Billiton and Rio Tinto.
However Fortescue bought itself out of an ongoing royalty obligation to New York-based Leucadia this year reducing costs.
Mr Power said bringing more volumes online at its new Firetail and Kings mines would reset the cost base further.
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