--Fortescue may seek up to US$1 billion after infrastructure
budget revised higher
--Increased capex requirements largely the result of extra 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 details on funding plans in first paragraph; extra
comments from CEO and CFO in fourth paragraphs and share price in
sixteenth paragraph.)
By Rhiannon Hoyle
SYDNEY--Australia's third-largest iron ore miner Fortescue
Metals Group Ltd. (FMG.AU) may raise as much as US$1 billion after
a detailed review of major new projects forced the company to
revise its infrastructure budget higher.
Fortescue, which is working to triple 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 its growth targets will likely be closer to US$9 billion,
outstripping its previous US$8.4 billion estimate. The overrun, it
said, is largely down 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 cites design and
scope changes, increased on-site housing costs and delays in
offloading equipment at the Port Hedland port as reasons for the
rise.
On a conference call with analysts, Chief Executive Neville
Power said Fortescue's desire to run the design and construction
programs for its projects in parallel, in order to achieve
production as quickly as possible, had undoubtedly led to
adjustments being required.
"There is some risk in that, but [we would] rather that than
wait for a very long detailed analysis; rather than wait until you
have everything picture perfect," Mr. Power said. "The immediacy..
is well worth that kind of process."
Fortescue's recent review 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.
The company said it is now in discussions for additional funding
to cover the US$600 million gap in the budget.
Chief Financial Officer Stephen Pearce said Fortescue is
examining "the normal range of options" for the extra
funding--which he estimated could total up to $US1 billion. The
company is unlikely, though, to sell equity or bring in another
company in order to meet its targets, he said.
Any deal is also "likely to be shorter term in nature... as we
have slightly sharper cash requirements through to February" as
Chichester Hub is brought into production, Mr. Pearce added.
In May, the company entered into a US$965 million lease facility
to secure additional funding options for the mining fleet
associated with its expansion program. In June, it announced a
further US$490 million in corporate senior debt facilities
supported by European export credit agencies.
The company said it will spend about US$4.2 billion of its
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.
Mr. Pearce said the US$9 billion budget should now give the
miner sufficient contingency to complete its projects as
planned.
Fortescue's share price came under pressure following the
comments, although analysts said the blowout was no surprise given
the ambitious targets set for both timing and capital
expenditure.
"In our view this was to be expected and we had already factored
this into our current thinking," Goldman Sachs analyst Ian Preston
said in a note.
Fortescue, which is vying with ArcelorMittal (MT) to be the
world's fourth largest producer of iron ore, 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.
Still, the stock closed down 2.2% at A$4.54 a share, which
compared to an 0.9% rise in the S&P/ASX 200 and an 0.4% lift
for a gauge of materials stocks.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com