Fortescue Metals Group has announced the sale of its 125 megawatt Solomon power station in the Pilbara to Canadian group TransAlta for $US300 million, in a move that will further alleviate pressure on its stretched balance sheet.
The sale comes a day after the miner said it would delay 40 per cent of its Pilbara expansion project and sack more than 1000 employees and contractors in an effort to save $US1.6 billion amid a lower iron ore price.
¦ Jamie Freed | The credibility of the Fortescue Metals Group management team has taken a hit
The price of iron ore plunged another $US2.20 a tonne to $US86.90 a tonne on Monday, according to The Steel Index. At current prices, Fortescue is not profitable on a bottom line level, although it hopes the cost-cutting initiatives announced will return it to profitability.
Fortescue said it had entered an agreement with TransAlta for 100 per cent of the power station’s capacity over the life of the project. Fortescue has delayed two-thirds of the originally planned 60 million tonne a year Solomon expansion as part of the cost-cutting initiatives announced on Tuesday.
Fortescue chief executive Nev Power said the power purchase agreement provided for long-term security of supply for the miner.
“It was always our intention to divest the Solomon power station to an established owner and operator of power generation assets,” Mr Power said. “We are pleased to establish a long term agreement with TransAlta, a company with more than 15 years of experience operating power stations and transmission and distribution systems to mining operations in WA.”
TransAlta also owns 335 megawatts of power generation facilities near Kalgoorlie.
The sale of Fortescue’s power station is subject to Foreign Investment Review Board approval and financial close is expected by the end of this month. Macquarie Capital had been advising Fortescue on the sale, while RBC Capital Markets was advising TransAlta.
Other non-core assets that Fortescue has flagged for sale include other power plants, its accommodation and airstrips and a stake in the undeveloped North Star magnetite project in the Pilbara.
Fortescue chief financial officer Stephen Pearce on Tuesday said there were two parties in advanced talks over purchasing a stake in North Star despite the current depressed iron ore prices.
“This is actually a pretty attractive project – somewhat different to what I would call a typical magnetite project because of the nature of the orebody and particularly its proximity to infrastructure,” he told The Australian Financial Review.
“At some point in time down the track magnetite will have its day in the sun and I think particularly this project will as well. A medium to long term investor that has that view is likely to find this project very attractive, remembering too this project in particular is of good magnetite grade and very, very low strip ratios and a relatively lower cost structure compared to higher cost magnetite.”
The Australian Financial Review
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