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Fortescue debt likely to grow
THE AUSTRALIAN OCTOBER 24, 2014 12:00AM
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IRON ore miner Fortescue Metals Group has conceded its debt is likely to grow in the coming year, in contrast to the company’s strong commitment in recent years to reducing its debt burden.
Fortescue, which yesterday wrapped up an investor tour across its Pilbara iron ore operations, told investors that it expected to see its net debt increase during the current financial year.
About $1.1 billion in iron ore prepayments — which helped Fortescue’s recovery in the wake of the 2012 iron ore price downturn — are due for delivery over the coming year, while a $700 million tax bill is also due for payment in the months ahead.
The delivery of the prepaid tonnes and the tax payments will hit cash flows that are already under pressure from a falling iron ore price that has squeezed margins at the miner.
Fortescue provided little detail of the structure of iron ore prepayments, such as the price at which they were struck.
It is also unclear whether Fortescue would need to make up the difference between the price at the time the prepayments were made and the price at the time of the tonnes are delivered.
With iron ore prices having fallen by about 40 per cent this year, there are concerns among investors that Fortescue could need to either return cash or offer additional tonnes of ore to make good on the value of the ore in the wake of the price slump.
One fund manager, who did not want to be named, told The Australian there was “a bit of smoke and mirrors” around Fortescue’s debt position, given the iron ore prepayments and the timing of the tax payment.
Fortescue has repaid $US3.6bn in debt in the past year, continuing a trend of balance sheet discipline that started in 2012 when the company was caught out sitting on peak debt during a sharp — albeit short-lived — drop in iron ore prices.
Fortescue’s gearing has fallen from 71 per cent in 2013 to 56 per cent in 2014, and Fortescue chief executive Nev Power has set a targeted gearing level of 40 per cent. The company told investors it was intending to repay a further $US2bn-$2.5bn of debt over the next 18-24 months. Those repayments now appear more likely to be weighted towards the back-end of that range.
UBS analyst Glyn Lawcock, who was on the site visit, said Fortescue’s net debt would increase in 2015 due to “catch-up tax and prepayments”.
PAUL GARVEY
FMG set to pay off its debt earlier
THE AUSTRALIAN OCTOBER 27, 2014 12:00AM
Paul Garvey
Resources Reporter
Perth
FORTESCUE Metals Group chief financial officer Steve Pearce believes the iron ore miner can still make more early debt repayments this financial year, even if iron ore prices do not improve.
Mr Pearce told The Australian the miner was well prepared for a series of upcoming one-off payments and could make further inroads into its debt by June 30.
Iron ore prices have fallen by 40 per cent this year amid a surge in supply, primarily from Australia, and a softening in demand out of China, shrinking margins across the iron ore sector.
The price fall comes as Fortescue prepares to make a $US666 million ($757.5m) tax payment, which will contribute to a rise in Fortescue’s net debt.
Mr Pearce said he was unconcerned by the rise in net debt given the company had been holding cash in anticipation of the tax payment, had made significant inroads into its gross debt and continued to generate solid cashflow. “I would love to think we could make some additional debt repayments in this financial year,” Mr Pearce said.
Fortescue, which has paid back $US3.6 billion in debt in the past year, told investors last week that it was targeting another $US2bn-$US2.5bn in early repayments in the next 18-24 months.
“We don’t have any debts due until 2017 so we’ve got plenty of time to accumulate cash. But I would love to think we could make some additional early repayments towards the tail end of FY15,” he said. “That’s at current iron ore prices,” he added.
Mr Pearce also moved to clear up concerns about the impact of about $US825m in iron ore prepayments that would fall due this year.
Mr Pearce said the prepayments were not linked to the iron ore price, and would only cover a portion of the value of the ore delivered under the contracts. When iron ore is delivered into the prepayment contracts, customers pay a portion of the shipment value, with the remainder offsetting prepayments.
“We haven’t created any iron ore price exposure in taking on these things,” Mr Pearce said.
He added that the prepayments had worked “perfectly” for the company, allowing it to accelerate early repayment of debt and reduce its interest costs.
A number of customers had expressed an interest in extending the prepayment program, Mr Pearce said, adding that between $US300m and $US500m of prepayments may get renewed.
Fortescue Metals says confidence in China market strong
AAP NOVEMBER 12, 2014 1:47PM
IRON ore miner Fortescue Metals Group is confident that Chinese growth will support the company in the future.
“Our confidence in China as our primary market remains strong,” chief executive Nev Power told the company’s annual general meeting.
Mr Power said while the iron ore price was going through a low point, demand in China would remain strong as urbanisation continued.
“While we are going through something of a low spot in the iron ore price this year, the fundamentals for demand continue very strongly,” Mr Power said.
“There has been an overrun on supply but that too will come to pass and we’ll see the continuation of strong demand for our products into the future.”
Mr Power said Fortescue was running beyond its annual 155 million tonne run rate, pushing towards 170 million tonnes per annum.
The company’s total delivered costs were $US45 per tonne.
Mr Power said Fortescue had already paid $US3.6 billion in debt, with no repayments due until 2017.
The Perth-based company achieved only $US71 a tonne during the September quarter, which was above its production costs, but it will make it harder for it to repay debt.
Fortescue Metals shares have fallen below $3 as iron ore prices plunge to five-year lows in an oversupplied market.
Meanwhile, the Australian Shareholders Association has decided to support the company’s remuneration report for the first time in three years.
The report received overwhelming approval from shareholders at the annual meeting.
Ahead of the AGM, Fortescue announced a reshuffle of its board, farewelling three long-serving directors.
Deputy chairman Herb Elliott — a member of the Fortescue(FMG) board since October 2003 — was to resign at the end of the AGM, alongside non-executive directors Graeme Rowley and Herbert (Bud) Scruggs.
Owen Hegarty has been appointed vice chairman of the Fortescue board, while existing board member Mark Barnaba will succeed Mr Elliott as lead independent director.
Mr Hegarty joined Fortescue as a non-executive director in 2008 and has more than 40 years experience in the global mining industry, including 25 years with Rio Tinto. Notably, he was the founder and chief executive of the Oxiana Ltd, now OZ Minerals.
As a result of the departures, non-executive director Sharon Warburton will join the audit and risk committee.
Fortescue chairman Andrew Forrest said the board shake-up was a part of the miner’s evolution.
“While it is sad to see stalwarts Mr Elliott, Mr Rowley and Mr Scruggs retire, it is also an exciting time with these changes rejuvenating our board and bringing different perspectives and different ideas,” Mr Forrest said.
“Fortescue has been well served by a board that boasts outstanding technical, financial and corporate skills and that will not change.”
AAP, Business Spectator
Chinese steel mills would back Fortescue
Edited by Sarah Thompson, Anthony Macdonald and Jake Mitchell
397 words
14 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
The slide in the iron ore price shows little sign of subsiding and many of the producers at the smaller end of town are thinking seriously about survival.
After iron ore nearly halved in value over the past year, Citigroup slashed its forecast this week to $US65 a tonne for the next two years, from about $US80.
But one company that may have some extra protection is Fortescue Metals Group.
Street Talk understands that some of Fortescue's major Chinese steel mill customers have signalled they will back the company should things get really rough. The country's third-largest iron ore producer has received billions in prepayments from its customers in the past, including $US600 million announced last week. It's understood some of the bigger steel mills have made it clear they are prepared to stick the course.
Fortescue's debt is made of mostly bonds so it is unclear how the steel mills could go about guaranteeing it, which may only leave with them with the option of more prepayments.
While there is no suggestion Fortescue is in danger of defaulting on its debt, it would be comforting for the company to know there is a somewhat of an implicit safety net (albeit one that will have to be repaid in ore someday).
It is in the interest of steel mills for Fortescue to remain a strong alternative behind the might of BHP Billiton, Rio Tinto and Vale, thereby limiting their pricing power. China also produces about 200 million tonnes a year that is state-owned and vertically integrated with steel mills.
Fortescue's break-even price is estimated at around $US70 a tonne, compared with $US45 for Rio Tinto and $US49 for BHP. Fortescue has been critical of the majors for their rapid expansion of capacity that has driven the iron ore price down, as well as their costs of production.
The company has paid back around $US3.6 billion in debt since last November, which has left it with net debt of $US7 billion and $US2 billion of cash. It has no repayments due until April 2017.
Citi referred to Fortescue as the "fittest" of the pure iron ore ASX-listed plays, with Atlas Iron, in particular, in a far more precarious position.
Fairfax Media Management Pty Limited
Document AFNR000020141113eabe0002t
Twiggy Forrest snaps up more Fortescue stock
AAP NOVEMBER 21, 2014 1:25PM
Twiggy Forrest now holds 33.3 per cent of Fortescue Metals. Source: News Corp Australia
ANDREW “Twiggy” Forrest bought $11 million worth of shares in his Fortescue Metals Group when their value hit a five-year low this week.
Mr Forrest, one of Australia’s richest people, bought four million Fortescue shares on November 19 and 20, as the company’s share price was hammered when the price of iron ore also hit a five-year low.
The purchase takes Mr Forrest’s stake in the company he founded and chairs from 33.2 per cent to 33.3 per cent.
Fortescue (FMG) shares were higher today, up 2.1 per cent to $2.70 at 1pm (AEDT), giving Mr Forrest’s stake a value of $2.8 billion.
That’s down from almost $3.5 billion just three weeks ago, and $6.2 billion in February, as the sliding iron ore price has more than halved Fortescue’s market value.
The company’s chief executive, Nev Power, also increased his stake in the miner on November 19, forking out $275,000.
AAP
Shock exit by top Fortescue executives stirs job cut fears
THE AUSTRALIAN DECEMBER 04, 2014 12:00AM
Paul Garvey
Resources Reporter
Perth
Peter Meurs of Fortescue Metals Group, by the Swan River in Perth, Western Australia.
Fortescue director of developments Peter Meurs will take a two-month sabbatical. Source: News Corp Australia
WORKERS at iron ore miner Fortescue Metals Group are bracing for job cuts after several senior executives left the company this week.
Fortescue has confirmed that its highly respected director of developments, former WorleyParsons managing director Peter Meurs, would step down from his executive role and take a two-month sabbatical from the company.
In addition, Fortescue’s director of health, safety, environment and security, Isak Buitendag, and its director of shared services, Peter Thomas, have left the company along with senior manager Kevin McCafferty.
The sudden departure of the senior personnel — the biographies of Mr Meurs, Mr Buitendag and Mr Thomas were still listed on the Fortescue website late yesterday — is likely to add to nervousness in the company as it looks to adjust to the deep pullback in iron ore prices.
Fortescue late last Friday announced it would halve its 2015 capital expenditure budget to $650 million and scrap the planned development of a detrital processing plant at its Solomon mining hub.
The company has been working aggressively to reduce its production costs since it reached its targeted production capacity of 155 million tonnes earlier this year, but the efforts have taken on greater urgency in light of the steep retreat in iron ore prices.
Workers at the company are believed to be increasingly nervous about possible cuts to the workforce in light of the latest management changes.
Fortescue moved swiftly to cut its workforce when iron ore prices fell sharply in September 2012, with about 1000 workers and contractors stood down in that instance. The extraordinary cost-cutting at that time also extended to the removal of barbecues and coffee machines, and the withdrawal of company-supplied tomato sauce.
Several factors this time around mean similarly dramatic moves are less likely today. In 2012, Fortescue was in the middle of a major construction program with a high workforce intensity, but those construction efforts have since come to an end.
The company also worked hard to address its debt burden, having paid back billions in debt since 2012 and refinancing its remaining borrowings. Fortescue now does not have any debt due for repayment until April 2017.
Westoz Funds Management executive director Dermot Woods said Fortescue was in a much better position to weather the current iron ore price fall than it was in 2012.
“They’ve done a phenomenal job getting their costs down; they continue to surprise on the upside in terms of their costs and they’re still making some money at current prices,” Mr Woods said.
“They’ve already reached full production so they were in that efficiency mode anyway, where they were going methodically through their costs, and they’ll definitely continue to do that.”
A spokesman for Fortescue said the management changes would allow the company to be “even more flexible and adaptive”.
“This is part of the normal evolution of our business and not a reaction to the market environment or performance related,” the spokesman said.
“Reshaping our leadership group will make our business more responsive and innovative, ensuring all areas of Fortescue are as efficient and productive as possible.”
Fortescue shares closed 14c or 5.4 per cent higher at $2.71.
Should You Buy Fortescue Metals Group Limited Shares Today?
Fortescue Metals Group Limited [ASX:FMG] opened higher today, gaining 1.63% by midday. The stock was trading at $2.5 a share. The market was reportedly surprised by the interest rate cut from the People’s Bank of China (PBOC).
This gave the Aussie market a boost. Miners were the main beneficiaries from the Chinese central bank’s decision.
http://www.moneymorning.com.au/20150302/...today.html
Mining shares dragged lower by iron ore price slump
Miners led the fall, with junior iron ore miner Atlas Iron the hardest hit among Australia’s iron ore producers, given its costs to produce the material are higher. Shares in the Perth-based company were 4.8 per cent lower at 15.7c.
BHP Billiton’s shares were 1.6 per cent lower at $32.10, Rio Tinto was down 2.3 per cent at $58.99 and BC Iron was down 4.6 per cent at 41c.
Shares in Fortescue Metals Group, which last week announced it was refinancing its debt with a $US2.5 billion senior secure note issue, were 0.93 per cent lower at $2.13.
RBC has lowered its price forecast from a flat $US80 a tonne near and medium term to $US60 a tonne this year, $US55 a tonne in 2016 and $US60 a tonne in 2017.
On the back of the cut to its price forecast, RBC has downgraded iron ore juniors Atlas Iron and BC Iron from “sector perform” to “underperform”.
http://www.theaustralian.com.au/business...7254733730
AUSTRALIA'S largest iron ore producers Rio Tinto and BHP Billiton have rounded on rival Fortescue Metals Group as they fend off accusations of flooding the market and hurting local producers.
FORTESCUE chief executive Nev Power in February publicly attacked Rio and BHP for increasing iron ore supplies while prices tumbled. But Rio Tinto's iron ore boss Andrew Harding has hit back, blaming Fortescue for increasing the global glut of iron ore.
"Rio Tinto, of the top three suppliers out of Western Australia, is the third largest increaser of supply in the market and FMG are actually the largest," Mr Harding told reporters at an industry conference in Perth. His counterpart at BHP, Jimmy Wilson, also singled out Fortescue, the nation's third biggest producer, for flooding the market.
"FMG is the most prolific grower," he said. "Who knows where FMG's going to go to." The iron ore price fell 1.5 per cent to a six year low of $US58.58 a tonne on Monday, just days after China cut its annual economic growth forecast to seven per cent. Fortescue's Mr Power blames much of the price falls in the past year on BHP and Rio, accusing them of boosting supplies to a depressed iron ore market and hurting smaller Pilbara miners and government revenue. But Mr Harding said he took no joy in the pain higher cost iron ore producers may be suffering.
Rio intends to maintain its 20 per cent market share and expects iron ore demand to grow more slowly than steel demand in the short term, he said.
BHP's Mr Wilson added that Gina Rinehart's Roy Hill project would definitely deliver 55 million extra tonnes of iron ore in the years ahead, further boosting supply.
He said players from Australia and China had entered the iron ore market during a period of massive demand, but this was turning around and companies with the most significant advantages would last longest. Meanwhile, Mr Harding confirmed Rio would shed hundreds of jobs in WA's Pilbara as the miner pursues efficiency measures in the coming months. BHP has also been shedding staff but the "lion's share" of job cuts have now been completed and natural attrition would largely take care of any further planned reductions, Mr Wilson said.
Citigroup's global head of iron ore Paul Lyons told the conference that iron ore prices will drop to $US55 per tonne in 2016, with the "floor price" of the steel making commodity hitting $US50. "To move up to $US60 to $US70 will require a turn around in China's property market which will require cuts to interest rates," Mr Lyons said.
Still, Rio, BHP and Brazil's Vale are continuing to expand production.