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Fortescue throws off choker on growth

Barry FitzGerald
October 11, 2010
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THE Fortescue chief executive, Andrew Forrest, has declared that a delayed $US2.04 billion ($2.07 billion) refinancing by the iron ore group will unlock ''tens of billions of dollars of shareholder value.''

The refinancing, delayed from May-June because of the uncertainty in capital markets about the federal government's mining tax proposal, involves the replacement of Fortescue's project-based secured notes with a corporate banking facility from JPMorgan and Royal Bank of Scotland.

The original notes were issued in August 2006 and funded Fortescue's initial development in the Pilbara, the Chichester production hub. Covenants under the original notes constrained Fortescue's ability to pursue its other Pilbara projects, as well as its ability to pay dividends.

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The refinancing will initially save Fortescue about $60 million annually through lower interest costs. Over time Mr Forrest expects the savings will equal ''hundreds of millions of dollars as we move into a much lower-cost banking environment''.

But the bigger prize for Fortescue is the freedom to get cracking on its growth projects in the Pilbara.

''As time has evolved, it has become extremely clear that limiting Fortescue under the weight of its previous financing would, in fact, lock up tens of billions of dollars of shareholder value,'' Mr Forrest told a media conference yesterday. ''We have quite literally replaced a heavily structured, highly secured financing package with an unsecured and unstructured financing package which allows the company absolute freedom in all areas in which it would like to grow.''