fortescue takes first step in debt reduction, page-8

From the Australian today

Fortescue's remarkable recovery allows it to cut liabilities by: Andrew Burrell From: The Australian September 18, 2013 12:00AM

FORTESCUE Metals Group has continued its stunning resurgence from last year's liquidity crisis by launching the early repayment of its $US12 billion ($12.8bn) debt pile, announcing it will buy back $140 million of preference shares that carried a 9 per cent interest rate.

The repayment of Fortescue's most expensive piece of debt comes after the miner surprised the market last month by paying more than $300m in dividends to shareholders amid a surge in revenue underpinned by stronger-than-expected iron ore prices.

The Andrew Forrest-chaired company has been emboldened by the progress of its expansion projects in the Pilbara, where it is expecting to be producing iron ore at an annual run rate of 155 million tonnes by the end of the year.

Fortescue said yesterday the $140m in preference shares -- issued in 2008 as part of the group's original project financing -- would be redeemed by November 11.

The early repayment is expected to be followed by a more aggressive debt pay-down in coming months as Fortescue attempts to reduce its gearing ratio from 67 per cent at June 30 to less than 40 per cent.

Chief financial officer Stephen Pearce said the redemption of the shares represented a milestone for the company and reflected its strong cash balance and improved operating margins.

He said Fortescue had flexibility in its debt structure and balance sheet, allowing early debt repayments or extension of maturity dates through refinancing.

"The redemption of the 9 per cent preference shares removes Fortescue's most expensive piece of debt and represents the first step in the company's strategy to reduce gearing levels," Mr Pearce said.

"Fortescue's strong financial position, together with the sharp reduction in capital expenditure as we near the completion of our $US9bn expansion to 155 million tonnes per annum, has enabled the company to begin debt repayments this year.

"Fortescue was forced to refinance $5bn in debt and sell assets last year after a sudden drop in the iron ore price to less than $US90 a tonne, a price that rendered the company unprofitable.

But 12 months on from that near-death experience, Fortescue last month announced a record full-year profit of $1.7bn, after earnings jumped by 12 per cent amid output from its new Firetail and Kings mines in the Pilbara.

The 10c-per-share dividend that was declared delivered Mr Forrest, the miner's biggest shareholder, a windfall of more than $100m.

Fortescue's break-even iron ore price is now $US70-$US75 a tonne, compared with last year's break-even price of $US90.

In a sign of the company's new-found confidence, Fortescue is believed to have decided against the multi-billion-dollar sale of a minority stake in its rail and port business, The Pilbara Infrastructure.Fortescue shares yesterday gained 4c to $4.62