nearology re twiggy

Fortescue plans aggressive growth

The Australian

Kevin Andrusiak | May 09, 2008

IRON ore wunderkind Fortescue Metals will pursue an aggressive expansion of its $4 billion Chichester Ranges project from as early as July when the company finally breaks caveats of bond holders.

Fortescue previously said it hoped to achieve an expanded rate of 100 million tonnes a year sometime in the 2009-10 fiscal year, but would need to increase the scale of mining operations around its Cloudbreak mine, for instance, to do so.

However, the aspiring third force in iron ore will attempt to bring forward that time frame, beginning with a board meeting in July which would mark the five-year anniversary of when the company first stunned the market with the news that it wanted to break the iron ore duopoly in the Pilbara.

Barring any major commissioning issues, by July Fortescue hopes to be achieving a production rate of 2 million tonnes over a four-week period, which is the major hurdle it needs to leap to escape the tight initial controls imposed by the overseas bond holders who backed the company.

Fortescue has not made public how much ore it expects to ship in the first 12 months, but has already mooted it will ramp up to a 55 million tonne a year rate as quickly as possible.

Original capacity was to be 45 million tonnes a year, but Fortescue said it had optimised the production process to add an extra 10 million tonnes without breaking bond holder caveats.

Fortescue raised $504 million last August in a placement of shares to fund its optimisation plan of 55 million tonnes a year. It originally wanted to raise $US300 million ($319 million).

The company's chief operating officer, Graeme Rowley, said the company had "no other option" but to look at expanding the project given China's enormous appetite for iron ore. "We have one of the best ore resource positions in the Pilbara," Mr Rowley said.

"What happens when you get to July is that we get very close to being cash-flow positive. The biggest financing option available to us then becomes cash.

"Financing always carries a range of options. We haven't made a decision on any of those.

"But I don't think people really know how much cash is generated in iron ore. The whole issue of what the 2008 iron ore contract price will be then becomes a sensitive aspect of revenue generation and the ability to accept equity/debt for financing or cash."

Contrary to some reports, Fortescue is yet to begin loading its first shipment of ore despite the arrival at the Fortescue Herb Elliott port this week of a 70,000-tonne vessel.

Fortescue shares retreated 30c to $9.09 yesterday.