FYI;Fortescue Metals Group, seeking to become Australia's...

FYI;

Fortescue Metals Group, seeking to become Australia's third-largest iron ore producer, says funding for the second stage of a $7 billion expansion is "uncertain'' because of turmoil in debt and equity markets.

Funding for a first stage expansion to 80 million metric tonnes, estimated to cost $2 billion, will be financed by cash flow from the existing mine in Western Australia, Graeme Rowley, executive director of operations, said today in a phone interview from Perth.

"Given the current financial markets the first bite out of that has to be one we can manage out of cash flow,'' Mr Rowley said.

"If you are trying to ask me how I am going to get to 160 (million tons) right now I have to say that is a little but uncertain because that's the way the market is.''

Fortescue may have difficulty financing the second expansion, JPMorgan Chase analysts led by David George said in a report dated yesterday.

The bank cut its share price target for the Perth-based mining company to $5.41 from $10.31 because of the funding concern. Financing the initial expansion to 80 million tonnes capacity isn't in doubt, Mr George said.

Fortescue fell 6.4% to $4.97 in afternoon trade. The stock has dropped 54% in the past three months, giving the company a market value of $13.9 billion.

Australian mining companies are seeking $26 billion to raise output as the worst credit crisis since the Great Depression tightens debt markets and raises borrowing costs. Fortescue plans to fund an initial expansion to 80 million tons a year from cash and may also finance the larger expansion internally, chief executive Andrew Forrest said last month.

"We have abandoned the 160 million ton project as the basis for setting our price target and reverted to the new base case assumption of 80 million tonnes, which can clearly be funded, whereas the funding for the former is very uncertain,'' JPMorgan said.