IMHO this is a good question, if you can call it a question. I...

IMHO this is a good question, if you can call it a question. I saw stevey's response but (most respectfully) think that it might have missed the essence of what you were asking/criticising a little.

You're not asking "why do companies use debt" (obvious enough why you would use debt to fund growth - the rocks do not indeed mine themselves), or "did FMG do due diligence", but rather "why is FMG's dividend policy to pay out 50-80% of NPAT regardless of the company's debt profile?". Although this is a standard payout ratio for large cap mining, it is a pretty high payout ratio compared to some other sectors; Apple for example is a cash cow but only has a payout ratio of 15-20%, and Google pays no dividend at all, preferring to keep their debt super low and holding a huuuugggeee amount of cash on hand. FMG certainly could run a more conservative balance sheet at no cost to growth if they diverted more of NPAT into paying down debt rather than paying out dividends, all things equal. They simply choose not to.

The answer probably lies in AF's vision for the company. There's a great moment - I think it's in the "Never, Ever Give Up" doco (youtube.com/watch?v=t9A3ribtheA) - in which AF recounts the early days of the FMG story, and how some finance wonk told him he had to structure FMG as either a "growth" or an "income" company, so that the market would be able to price it correctly. AF's response was something along the lines of "screw you, we're going to do both", i.e. pay a big dividend every half but also chase ambitious growth projects. And that simply can't be achieved if you're using NPAT to pay down too much debt - blunts the "income" part of the equation.

Personally I love FMG's dividend policy - I'd much rather be free to invest my fully franked dividend payment every 6 months as I see fit than use it to pay down debt at FMG's borrowing costs.