Article in todays Age that rates FMGs sp future as fantastic or...

Article in todays Age that rates FMGs sp future as fantastic or oops


FORTESCUE Metals Group has given strong indications it will resume parts of its expansion program that were put on hold and complete them within 12 months.

Fortescue chief executive Nev Power said work on the ''Kings'' iron ore project - halted in September amid an iron ore price slump - would resume at an iron ore price of $US120 a tonne, reinforcing recent hints from the company that the pause would be short-lived.

The benchmark iron ore price has recovered from last month's extraordinary slump below $US90 a tonne to $US113 a tonne last night.

When asked if an iron ore price of $US120 was strong enough to restart work at Kings, Mr Power said ''yes, it is''. Analysts believe it would restart Kings at even lower prices.

Most analysts believe Fortescue's business model - which uses debt to expand iron ore production rates to 115 million tonnes by March, and eventually to 155 million tonnes - is viable so long as iron ore prices remain above $US100 a tonne.

The company has hinted twice in recent weeks that a restart at Kings was possible in December, and documents released yesterday gave further indications. In its September quarter results, it said completion of the Kings project was ''likely before the end of calendar 2013''.

When asked about that schedule, Fortescue's development manager, Peter Meurs, confirmed it was based on a December restart, which - while not guaranteed - would ensure first ore production by August 2013.

He said there were ''significant advantages'' to restarting in December, particularly around costs payable to contractors and other penalties linked to delays.

Fortescue has eased its debt crisis by taking on a larger amount of debt with later payback dates. A $US5 billion credit facility, completed over the weekend, does not require servicing until November 2015.

Pengana Capital fund manager Tim Schroeders said Fortescue's highly geared financing structure seemed more suited to the era before the global financial crisis of 2008.

''We are moving into a different junction for iron ore prices,'' he told Sky News. ''Having said that, if they execute well and iron ore prices stabilise and move up, it's probably a fantastic buy.''

Fortescue expects to produce between 82 and 84 million tonnes of iron ore in the year to June 30, 2013, despite production for the September quarter being slightly down at 16.1 million tonnes. Of that total, 15.4 million tonnes belong to Fortescue, with the rest belonging to thriving iron ore junior BC Iron.

The September results laid bare some of the damage from the price slump that dominated much of August and September.

Fortescue received an average price of $US98 a tonne during the quarter, a price that would deliver the company a barely break-even result.

Fortescue shares closed 13¢ higher at $3.85.