Taken from FMG thread. Thanks mme09.Fortescue looking to bulk up...

Taken from FMG thread. Thanks mme09.

Fortescue looking to bulk up quickly
Jacob Saulwick
July 21, 2008

FORTESCUE Metals Group is about to embark on its next stage of expansion, confident that demand for iron ore will remain strong for more than a decade, and signalling that its initial focus will be on increasing production from its base in Western Australia's Chichester Ranges.

On Friday Fortescue achieved official "project completion" status for its iron ore facilities.

Under a deal struck with bond holders, Fortescue had to mine, rail and ship two million tonnes of ore within a four-week period before it could chase further deals. After hitting the mark just before midnight on Friday - or "just before the ellipse of the five-year anniversary since we started this company," its chief executive, Andrew Forrest, said - Fortescue can pursue plans to raise money and expand.

Mr Forrest said Fortescue's project in the Chichester Ranges could support an operation in excess of 150 million tonnes a year. "We can achieve a mining house in the iron ore business at least the scale of BHP's medium term objectives just in the Chichester region alone," he said yesterday.

The easiest place to increase production would be in the vicinity of existing infrastructure. "It would be prudent to expand there first. But you can be assured that hot on the heels will be the development of the major resources which we've discovered and which we will continue to discover in the central and west Pilbara."

Fortescue, which has received $200 million since its first shipment of ore on May 15, has sent off three million tonnes of ore.

It aims to export up to 200 million tonnes of ore a year in the medium term, and believes the next stage of its development will be cheaper to build up than its initial facilities. Other miners have warned about the higher cost of new facilities at a time of rising steel and labour prices, but Mr Forrest said Fortescue's capital costs for its expansion would be a "step-change" lower than previous projects.

Fortescue's executive director, Graeme Rowley, said the company would be very disappointed if it only achieved the industry benchmark of a million-tonne expansion costing $100 million.

Mr Forrest said he was confident of China's demand for iron ore for the next 10 to 15 years.

"The growth of the steel sector in Asia is not noticing the credit meltdowns" in the US and Europe, Mr Forrest said.

One steel producer, for example, said it would take the entire supply if Fortescue expanded to 150 million tonnes a year in Chichester Ranges.

To finance the growth, he canvassed the likelihood of some of Fortescue's major steel customers putting up cash to ensure the growing production.

Fortescue shares slumped from $9.90 to $8.12 last week.