Fortescue open to asset sales
Fortescue Metals said it remains open to asset sales, despite recently overhauling its multi billion-dollar debt to push out the timing of repayments.
"We've completely derisked our assets and therefore it's a good time to be thinking about (sales), but we don't have anything under active consideration and we'll just take it as it comes," chief executive Nev Power said on the sidelines of a Sydney conference.
"As you saw from our balance sheet, there's no imperative for us to do anything," he added.
Last month, the world's fourth largest miner raised $US2.3 billion in debt just a month after it scrapped a similar-sized bond offering saying it couldn't agree on terms with investors.
To secure the refinancing, Fortescue agreed to pay an interest rate of 9.75 per cent on its newest seven-year bonds, which were sold mostly to US-based investors. That is higher than the 9 per cent coupon investors were pushing for at the time of the pulled bond deal in March.
Fortescue may get marginal player status
Iron ore Amanda Saunders
629 words
4 Jul 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Even as Fortescue Metals Group races to hammer down production costs, the leaner miner faces the prospect of becoming the marginal producer of the large iron ore players, once Brazil's Vale brings its new mega expansion project online, analysts say.
Iron ore crashed spectacularly overnight on Thursday - falling 6 per cent to $US55.63 a tonne - its biggest one-day decline in a year. It snatched back much of the modest recovery made since hitting a record low of $US47 a tonne in early April.
UBS mining analyst Glyn Lawcock told AFR Weekend that "the concern the market has is that the all-in cash delivered price that FMG needs to be cash-neutral is ultimately going to be the dictator of where the long-term price settles".
Fortescue could become the highest-cost of the large producers - Vale, Rio Tinto and BHP Billiton, and newcomers Roy Hill and Anglo American, he said.
"As more low-cost supply comes on, and high-cost supply is pushed out, ultimately the risk is that Fortescue becomes the most significant size marginal player. So even with their newly discovered cost base, they could still find themselves not making cash."
Vale sealed a major $US16.5 billion ($21.6 billion) expansion last month with financial backing from China that will allow the miner to produce 90 million tonnes of high-quality iron shipped to China at a cost close to that achieved by industry leader Rio Tinto. The project, S11D, with cash costs of $US11 a tonne, should be finished next year.
"We would expect S11D to drop Vale below FMG on an all-in cash break-even basis to China," Mr Lawcock said. Vale's costs are inflated by hedged freight, but that will also change.
Fortescue chief financial officer Stephen Pearce told AFR Weekend last month that the miner had a cost structure superior to Vale's, and believed some investors failed to recognise this. "We believe we are well positioned in terms of the four global iron ore majors and we expect [on a break-even basis] to even come a little bit below where Vale sit."
Barclays mining analyst Amos Fletcher told AFR Weekend that "whether the higher cost producer is FMG or Vale, the cost curve is going down; so investors should stick with the lowest-cost producers - BHP and Rio".
"If FMG's financial 2016 cost targets are achieved - and I would question if not the achievability, then certainly the sustainability - e.g. maintenance capex at $US2 a tonne is probably not sustainable for FMG - that would see them at a lower cash break-even than Vale," Mr Fletcher said.
But the London-based mining analyst agreed that S11D could see Fortescue become the marginal producer among the big four. Fortescue is targeting production costs, also known as cash or C1 costs, of about $US18 a tonne this year, from $US26 in the June half.
Fortescue put its break-even at about $US39 a tonne, while Mr Lawcock estimated it at $US44 a tonne. Vale's break-even is about $US43 a tonne and it is targeting $US40 this year.
Gina Rinehart's Roy Hill project will come onto the market later this year with a lower break-even than Fortescue; that will likely start creeping up in one to two years as sustaining capital costs and strip ratios increase.
"Fortescue has got cash today but the risks are that if they hold their cost base down here, the question ultimately is ... will the price come down to meet them?" Mr Lawcock said.
"Then they will be in just as much trouble as if they'd been running at a $US50 cost base."
Fairfax Media Management Pty Limited
Document AFNR000020150703eb7400012