--Development of Kings iron ore 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
(Adds comment from Fortescue's CEO from third paragraph)
By Robb M. Stewart
MELBOURNE--Fortescue Metals Group Ltd. (FMG.AU) said Thursday 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 protect a debt-burdened balance sheet.
"We always intended to complete this project," said Chief
Executive Nev Power in a telephone interview, adding the decision
to continue work has been driven by a recovery in the outlook for
iron ore prices and the success of the company's efforts to contain
costs and raise cash through the sale of noncore assets.
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.
The completion of Kings is expected to cost between US$1.1
billion and US$1.2 billion, a figure Mr. Power said isn't expected
to have changed despite the suspension of the project.
Workers and resources will be redeployed from the nearby
Firetail deposit, where the company is ramping up output to 20
million tons a year by the end of March, he said.
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 worked through
stockpiles of iron ore and coal, 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 below US$90 a ton in early September,
although it has since recovered to about the US$135 a ton
level.
Fortescue expects the iron ore price to average about US$120 a
ton next year, based on what Mr. Power said are the supply-demand
fundamentals, although he cautioned volatility is likely to
continue near term.
The company was formed in 2003 and quickly grew into one of the
world's largest suppliers of iron ore from the arid Pilbara in
Western Australia state, a region that accounts for roughly 40% of
global trade in the commodity by sea. It took on large amounts of
debt to challenge the ongoing expansion of Rio Tinto's and BHP's
mining operations.
After emergency talks with its lenders in September, 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 190 million Australian dollars (US$197 million).
Mr. Power said Fortescue continues to consider the possible sale
of a minority interest in its rail and port assets. The company
earlier this month said Lazard and Macquarie Capital had been hired
as advisers after it received strong interest from strategic and
financial investors.
Fortescue shipped 57.5 million tons of iron ore, mainly to
customers in China, in the fiscal year through June and has said
its production capacity should grow to 115 million tons annually by
March.
-Write to Robb M. Stewart at robb.stewart@wsj.com
-David Winning in Sydney contributed to this article
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