shipping contracts update, page-10

FMG down on analysts warnings

16th December 2008, 11:00 WST

http://www.thewest.com.au/default.aspx?MenuID=3&ContentID=113467


Fortescue Metals Group has plunged 7.2 per cent in early trading after analyst reports yesterday claimed the WA iron ore miner’s decision to suspend shipping contracts could cost it $US300 million.

An analyst at investment bank Morgan Stanley Australia also said Armanda Shipping of Singapore had lodged a legal case against Fortescue with the US Federal District Court, which it believed related to the cancellation or non-payment of shipping contracts by the miner.

The report forecasted a loss of $542 million for Fortescue for the first half of 2008-09 due to a number of factors including shipping losses.

Fortescue subsequently issued a statement to the Australian Securities Exchange this morning in which the company said it was seeking legal advice ahead of taking decisive action over 10 shipping contracts.

“Each of the 10 contracts that have been actioned need to be considered on their specific facts and merits as Fortescue will use the all the appropriate legal mechanisms for determining the disputes that have arisen between some of the parties and any future disputes that may arise,” the company said.

The statement was issued following reports earlier this month that Fortescue was looking to suspend long-term vessel charter contracts due to plunging freight rates and the slump in Chinese demand for iron ore.

Fortescue put the contracts in place earlier this year when cape-size iron ore carriers where difficult to tie down due to the booming iron ore market but has not yet revealed details of the shipping arrangements, nor the financial impact of its decision to suspend the charter agreements.

The Baltic Capesize Index (BCI), which measures the charter rate for the biggest iron ore carriers, has fallen more than 90 per cent in the past six months as part of a global collapse in freight rates.

The plunging BCI has resulted in Fortescue dealing with freight rates well above the charter spot price.

Fortescue shares had dropped 19¢ to $2.44 by 10.27am.

PERTH
DALE MILLER