--Work developing Kings deposit to resume in January
--Annual production capacity to rise to 155 million tons by the
end of 2013
--Kings project was halted in September after iron-ore prices
fell sharply
(Recasts the first paragraph, and adds detail on the project and
background throughout.)
By Robb M. Stewart and David Winning
MELBOURNE--Fortescue Metals Group Ltd. (FMG.AU) said Thursday
that it will resume work in the new year on developing a key
iron-ore deposit in Australia's remote Pilbara region, putting it
back on track to boost its production capacity to 155 million
metric tons a year in 2013.
The mining company, the country's third-largest producer of the
steelmaking commodity after Rio Tinto PLC (RIO) and BHP Billiton
Ltd. (BHP), suspended work at its Kings deposit in early September
after a slump in iron-ore prices forced it to slash spending and
costs in an effort to shelter a debt-burdened balance sheet.
"The recent improvement in iron-ore prices and market outlook,
along with a number of measures undertaken by Fortescue, including
the sale of non-core assets, a reduction in operating costs and the
restructuring of existing bank facilities, underpinned the decision
to complete Kings in the new year," Fortescue said in a statement
to the Australian Securities Exchange.
Completion of the Kings development is set to add a further 40
million tons a year to Fortescue's production capacity by the end
of next year, roughly six months later than the company had been
targeting before the project was halted. Importantly, the
additional volume will help lower Fortescue's production costs and
allow it to redeploy workers who are currently ramping up capacity
at the nearby Firetail deposit to 20 million tons a year by the end
of March.
Mining companies across Australia were caught out by a sharp
fall in prices for industrial commodities earlier this year as
demand from China cooled and steel mills there slowed output,
forcing a renewed focus on cost-cutting and the postponement of
billions of dollars in expansion projects. The market price of iron
ore fell by about one third in just two months to as low as
US$86.70 a ton in early September, although it has since recovered
to about the US$135 a ton level.
After emergency talks with its lenders, Fortescue secured a US$5
billion loan to refinance its existing debt but without any
conditions that could be triggered by weak prices. It also sold a
power station at one of its mines for US$300 million, sold a 25%
stake in an equal mining venture with BC Iron Ltd. (BCI.AU) for
A$190 million (US$197 million) and launched negotiations to sell a
minority interest in its rail and port assets.
Neville Power, Fortescue's chief executive, said current market
conditions were carefully considered before the decision was taken
to resume work on Kings. The company has made good progress
expanding its Chichester mining operations and developing its
Firetail mine, so could now turn its attention to the halted
project, he said.
Fortescue was formed in 2003 and quickly grew into one of the
world's largest suppliers of iron ore from Western Australia state,
a region that accounts for roughly 40% of global trade in the
steelmaking ingredient by sea. The company took on large amounts of
debt to develop mining operations and build a railway to rival that
belonging to Rio Tinto and BHP.
Write to Robb M. Stewart at robb.stewart@wsj.com and David
Winning at david.winning@wsj.com
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