corporate action - been going for some time...

The following perhaps an indication why...

Seems FMG drive a hard bargain

1. BCI gave them half of thier project for access to rail....


2. Fortescue crunches costs
9th June 2009, 7:15 WST

Fortescue Metals Group is trying to force contractors to drop their prices by 20 per cent, in the most aggressive attempt yet by Andrew Forrest’s fledgling Pilbara iron ore miner to cut external costs by $400 million a year.

Contractors and suppliers were informed of the demand yesterday in a letter from new Fortescue chief financial officer Michael Minosora.

Although the letter said it was only a “request” for contractors to accept the 20 per cent price cut from July 1, Mr Minosora hinted strongly that their future relationship with Fortescue would depend on agreeing to the new terms.

The demand is another blow to WA’s contracting sector, especially for smaller operators which have seen their profitability squeezed by the sharp drop-off in work volumes caused by the global economic crisis.

Fortescue’s demand could not have come at a worse time, given the contracting sector is bracing for fallout from Rio Tinto’s proposed iron ore operations merger with BHP Billiton.

Analysts believe the merger could give massive bargaining power to Rio-BHP at the expense of contractors.

Fortescue, hit by the below-forecast ramp-up of its Pilbara operation and facing a 37 per cut to benchmark iron ore prices this year, has struggled to meet the cash-flow targets required to service a $3 billion debt load.

Mr Minosora joined Fortescue as chief financial officer earlier this year and surprised analysts in April with the size of his cost-cutting target.

“As you are aware, this is an unprecedented time in the industry,” Mr Minosora said in his letter, which was distributed to a raft of Fortescue contractors and suppliers.

“In response to the changing economic climate, we are reviewing our entire cost base and are specifically looking at reducing our third-party or procured spend base.

“We are confident that supplier partners who support us through this challenging period will reap the rewards of their commitment in the near future.”

Mr Minosora’s letter has provoked a furious reaction from contractors, which claim Fortescue’s demand could send them broke.

One contractor, who asked not to be named, said it was tough enough to make a 15 per cent profit margin, which put into context Fortescue’s price cut demand.

He also claimed that Fortescue, at the same time as it was forcing huge price cuts on to contractors, was trying to delay paying its own bills as long as possible.

In his instance, some bills had taken six months to be paid.

Another contractor said: “What audacity. Given that the (Fortescue) share price closed at $3.18, 13.6 per cent up, last Friday, does this mean that all executive salaries and bonuses are also under review?

“Shame on you, Mr Michael Minosora, for targeting small suppliers.”