By Rebecca Keenan and Jesse Riseborough
Sept. 30 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, missed today’s deadline to raise as much as $6 billion from Chinese lenders to finance expansion of its mine, port and rail project.
“There is no change whatsoever to Fortescue’s plans to expand,” Cameron Morse, spokesman for Perth-based Fortescue, controlled by billionaire Andrew Forrest, said today by phone. He wouldn’t comment on whether the funding talks were continuing.
China, the world’s biggest buyer of the ore, has invested in more than $56 billion of projects globally to try to reduce dependence on Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world’s three-biggest exporters. Fortescue plans to use the funds to more than double exports by 2012.
“Without securing extra funding, the expansion timeline has to come into question until if, when, a suitable funding package is secured,” Len Eldridge, an iron and steel analyst at Macquarie Group Ltd. said by phone from Perth. He has an “underperform” rating on the stock.
Fortescue dropped 2.1 percent to A$3.82, its lowest since July 14, at the 4:10 p.m. Sydney time on the Australian stock exchange. The stock has risen 98 percent this year and has a market value of A$12 billion ($11 billion).
Pricing Deal
Today’s funding deadline was part of the company’s ore pricing agreement last month with the China Iron & Steel Association and Baosteel Group Corp. Securing financing is a condition of the accord under which Fortescue agreed to supply Chinese mills with ore at a 35 percent reduction in price to last year’s pact.
The agreement condition for the completion of the funding by Sept. 30 will not be met, the company said today in a statement to the exchange. “Fortescue intends to continue working co-operatively with CISA, including the provision of attractive iron ore pricing if requested.”
The company had held talks with major Chinese financiers, Forrest said in an interview last month, without naming the potential lenders. Fortescue plans to expand capacity to 95 million metric tons by 2012, former Chief Financial Officer Michael Minosora said last month, from current capacity of about 45 million tons.
The loan may be provided by a Chinese syndicate including the Export-Import Bank of China, the Australian newspaper said today, without citing anyone.
Shan Shanghua, general secretary of the Chinese steel association, couldn’t be reached immediately for a comment.
Expand Capacity
China is Australia’s second-biggest trading partner, with two-way trade valued at A$68 billion in 2008, and is its largest source of foreign investment. China, which has a $200 billion sovereign fund, hasn’t been as affected by funding constraints and may boost spending on oil and mining acquisitions by at least half this year, according to data complied by Bloomberg.
Fortescue may need between $3 billion and $4 billion to proceed with plans to almost double output, Hunan Valin Iron & Steel Group, its second-largest shareholder, said in May.
The company in May 2008 started shipments to China from its A$2.8 billion project in Western Australia. It shipped 27 million tons of ore in fiscal 2009 for sales of $1.8 billion. Fortescue in 2007 flagged expansion plans with a target of as much as 200 million tons. The company said in April expansion plans had been put on hold because of a cash squeeze.
Fortescue had ratings on its debt cut by Standard & Poor’s Ratings Services and Moody’s Investors Service in the past month on delays to expanding production. The company is “tight on cash” and needs additional capital this half, Morgan Stanley analysts said in a Sept. 2 report. An expansion to 98 million tons may cost as much as $4 billion, the broker forecast.
Fortescue has liabilities of $554 million maturing this half and a further $178 million due next half, according to Morgan Stanley. It had cash of $655 million at June 30 and non- current liabilities of $2.8 billion, according to an Aug. 10 presentation. The liabilities include $2.25 billion of debt.
To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.netJesse Riseborough in Melbourne at jriseborough@bloomberg.net
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