Fortescue Cuts Spending, Refinances Debt
At the time of the announcement, the benchmark spot price for iron ore was run-ning around $90/mt, down from around $187/mt in February 2011. The price had recovered somewhat to just over $100/mt by the end of September.
On September 18, Fortescue secured an underwritten commitment for a senior secured credit facility of up to $4.5 billion by Credit Suisse and JP Morgan. The facil-ity will be used to refinance all of Fortescue’s existing bank facilities and pro-vide it with additional liquidity.
Fortescue initiated discussions to restructure its bank facilities and remove earnings-based covenants in advance of the next scheduled review in December 2012. The new facility removes these covenants and extends the company’s debt maturity profile. The earliest repayment date for any of its debt is now November 2015.
Fortescue confirmed its commitment to complete an ongoing expansion of its Christmas Creek mine at its Chichester hub, 120 km east of the Solomon hub, which will lift production capacity at the Chichester hub to 95 million mt/y.
The company will also continue to develop the Firetail deposit at its Solomon hub and port and rail projects to deliver a near-term growth target of 115 million mt/y. Firetail is scheduled to produce 20 million mt/y of iron ore by the end of March 2013.
In other news, on September 5, Fortescue announced an agreement to sell the 125-MW dual-fuel power station at its Solomon hub to a wholly-owned subsidiary of TransAlta Corp. for net proceeds of $300 million. Concurrently, the company entered into a long-term power purchase agreement with TransAlta for 100% of the power station’s capacity over the current life of the Solomon mines. TransAlta is Canada’s largest publicly-traded power generator. The company has assets in Canada, the United States, and Australia, where it supplies electricity to mining operations in Western Australia from operations near Kalgoorlie.
On September 25, Fortescue announced it had awarded Leighton Contractors the mining and operations contract for the Firetail mine. The $1.5-billion, five-year contract includes operating and maintain-ing the mining fleet, the ore handling plants, and all associated infrastructure. The contract also includes a commitment by Leighton to engage graduates of Fortescue’s Indigenous training and employ-ment program and to support Fortescue’s commitment to provide opportunities for Aboriginal contractors and joint ventures to further expand Indigenous employment opportunities.
Indigenous employees comprise more than 10% of Fortescue’s workforce, and the company has awarded more than $500 million worth of contracts under its commitment to provide $1 billion in contracts to Aboriginal contractors and joint ventures.