October 16, 2012 / 2:16 AM / in 5 years

Fortescue says to lift iron ore output as price recovers

SYDNEY (Reuters) - World no. 4 iron ore miner Fortescue Metals Group (FMG.AX) sees a sustained recovery for ore demand in China enabling the Australian firm to resume major expansion work in Australia.

Iron ore is loaded into a pile at Fortescue Metals Cloudbreak iron ore mine, about 250km (155 miles) southeast of Port Hedland in Western Australia state, July 25, 2011. REUTERS/Morag MacKinnon

The pace of production by Fortescue and rivals is being watched for signs on how weaker consumption of steel in China is playing out on demand for industrial commodities. Miners have in recent months been scaling back expansions and spending, raising concerns a decade-long mining boom in Australia is ending.

Fortescue in September slammed the brakes on plans to lift its annual capacity to 155 million tonnes by digging a new mine named Kings in Australia as a slide in world iron ore prices to under $87 a tonne coincided with a mounting debt pile.

Iron ore has since recovered to around $113 a tonne .IO62-CNI=SI, close to the $120 level Power says is needed to warrant a restart of the Kings project.

“The price drop caught everyone by surprise because of the speed and how far the iron ore price fell,” Fortescue Chief Executive Nev Power told reporters. “It overshot, then rebounded.”

Fortescue also cut about 1,000 jobs and completed a $5 billion restructuring deal, increasing its debt and lending facilities to more than $12 billion.

“China’s growth is being maintained at around 7.5 percent and their exports are growing, which augers well for the future,” Power said.

“We expect the steel market and iron ore market to respond over the next month or two to restore the price level to around $120 a tonne,” he said.

Power said the Kings mine was two-thirds complete when work was halted and that a decision whether to finish the project was likely by the end of December.

Fortescue is forecasting first-half fiscal 2013 production to reach 36 million tonnes, setting the course for output of 82-84 million tonnes in the year to June 30. Last year it produced around 60 million tonnes.

Fortescue shipped 16 million tonnes of ore in the September quarter, the company said.

RIO TINTO AND BHP

    Fortescue’s bigger rival, Rio Tinto (RIO.AX) (RIO.L), is due to release its production data later on Tuesday. The world’s No.2 iron ore miner is expected to stick to plans to raise production in Australia.

    Production costs at Fortescue in the last quarter averaged $49.44 per tonne against average sales of $98 per tonne, the company said.

    September-quarter mine output was up 16 percent from a year ago, but 4 percent below the July quarter.

    Iron ore has been among the hardest hit industrial commodities following China’s economic cool down. Despite efforts to broaden its customer base, Fortescue ore is mostly sold to steel mills in China.

    Rio Tinto Chief Executive Tom Albanese recently told an investment seminar the company’s operations were performing better than those of peers, leading analysts to expect it was sticking to 2012 production guidance of 250 million tonnes. Last year Rio Tinto mined 244.6 million tonnes.

    BHP Billiton (BHP.AX), the world’s third-biggest iron ore miner, releases its quarterly production data on Wednesday.

    Shares in Fortescue were trading up 2.7 percent at A$3.82, outperforming light gains in the broader market. The stock tumbled as low as A$2.81 last month on concerns it would need to sell equity or prime assets as the iron ore price fell.

    Reporting by James Regan; Editing by Ed Davies

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