--Fortescue lifts infrastructure budget to US$9 billion, up from
US$8.4 billion
--Increased capex requirements largely the result of increased
costs at Solomon Hub
--Miner is talks on additional funding sources, it says
--Reports record shipments of 17.8 million tons in June quarter,
up 42%
(Adds comments and details on budget and funding throughout,
including comments from CEO in fifth paragraph.)
By Rhiannon Hoyle
SYDNEY--Australia's third-largest iron ore miner Fortescue
Metals Group Ltd. (FMG.AU) is assessing its funding options after a
detailed review of major new projects prompted the company to
increase its infrastructure budget 7% to US$9 billion.
Fortescue, which aims to expand its production in the Pilbara
region of Western Australia state to 155 million metric tons a year
by mid-2013, Tuesday said the capital required to achieve this will
outstrip its previous US$8.4 billion estimate thanks largely to a
jump in costs at its Solomon Hub project in Western Australia.
The company has lifted its expected capital expenditure for
Solomon by US$500 million, to US$3.2 billion. It cited design and
scope changes, increased on-site housing costs and delays in
offloading equipment at the Port Hedland port as reasons for the
rise.
Fortescue's recent review of its expansion plans also resulted
in a US$200 million increase in the budget for its port and rail
operations--although there was a US$100 million reduction in
expected spending for the Chichester Hub project.
"There were pluses and minuses in the cost results," Chief
Executive Neville Power said on a conference call.
Funding for the additional US$600 million needed in the
infrastructure budget is now under review, Fortescue said. "The
company is in discussions regarding additional funding sources to
maintain overall liquidity levels," it said in a quarterly
report.
Fortescue is vying with ArcelorMittal (MT) to be the world's
fourth largest producer of iron ore. In May, the company entered
into a US$965m lease facility to secure additional funding options
for the mining fleet associated with its expansion program. In
June, it announced a further US$490m in corporate senior debt
facilities supported by European export credit agencies.
It said it would spend about US$4.2 billion of the budget in the
2013 financial year, up from US$4 billion in 2012. Around US$400
million will be spent in 2014, with US$400 million having already
been spent in 2011.
Fortescue said it has "an absolute focus" to ensure the ramp up
of its Solomon infrastructure is completed on time to meet the
company's 2013 production targets.
Mr. Power said the initial cost estimates on the project had
been "very aggressive."
"If you look at the cost of the Solomon development, even with
this change in price, it is very, very competitive," he said.
The company meanwhile announced record quarterly iron ore
shipments of 17.8 million metric tons, up 42% on-quarter. Its
mining operations rebounded from a rain-affected March quarter,
with total mined volumes of 19.2 million tons up 41% on the prior
period.
It achieved an average sales price of around US$125 a dry metric
ton at destination ports during the quarter. This compares to an
average benchmark price of US$141 a ton.
The sales price was down only slightly from US$126 a ton in the
March quarter.
"Overall the stability of the iron ore price during the last six
months has been a positive for the industry, given the relative
volatility of other commodities across international markets,"
Fortescue said.
Cash costs fell to US$46.04 a ton from US$52.56 a ton over the
same period "as the scale benefits of strong production pushed down
unit costs," it said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com