fortescue in cost-cutting mode

...With the iron ore price in the doldrums and the market concerned about its debt levels, Fortescue Metals Group chief executive Nev Power is believed to have called in senior executives for a snap meeting on Sunday.

It is not known what was discussed, but the miner’s $US9 billion expansion project would have been front of mind, plus contingency planning for scenarios if the iron ore price remains below $US100 a tonne for an extended period.

Feedback from contractors is that Fortescue is already taking the knife to spending plans for the expansion.

A number of engineering company Calibre Group’s staff who had been working on Fortescue’s expansion projects have been laid off. The miner is said to be trimming costs in places such as the Solomon project housing, where workers may not find accommodation as gold-plated as had been planned.

The bigger question is if Fortescue will take further steps, such as completing its Chichester expansion to 95 million tonnes due within weeks but shelving all or part of the additional 60 million tonnes to come from Solomon.

But Solomon is meant to lower production costs, most contracts have been awarded and restarting would be costly, so shutting it down now would be a tough decision to make.

Broker Patersons Securities yesterday told clients Fortescue’s all-in production costs, including interest payments, was $85 a tonne in the first half of 2012 and $86 a tonne in the second half.