today's gap, page-9

By Ricky Roxas | October 12, 2010 2:30 PM AEST

Macquarie upgrades Fortescue to bullish status but Deutsche thinks otherwise

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Macquarie upgrades Fortescue to bullish status but Deutsche thinks otherwise
Following the announcement of its new debt facility on Monday, Fortescue Metals Group Ltd (ASX: FMG) drew mixed reviews from Deutsche Bank and Macquarie, with the latter offering a positive outlook for the iron ore miner it now calls as the third force in the iron ore industry.


Macquarie upgrades Fortescue to bullish status but Deutsche thinks otherwise

Deutsche Bank
Following the announcement of its new debt facility on Monday, Fortescue Metals Group Ltd (ASX: FMG) drew mixed reviews from Deutsche Bank and Macquarie, with the latter offering a positive outlook for the iron ore miner it now calls as the third force in the iron ore industry.
Macquarie said on Tuesday that Fortescue has effectively departed from its neutral status in light of its fresh $US2.04 billion or $A2.07 billion bank facility that the mining firm said would be utilised to refinance $2.03 billion of high costs notes acquired earlier.

Macquarie analyst Martin Stulpner informed clients that Fortescue has acquired flexibility due to the facility's lower interest rates and longer maturity dates as he highlighted that "the key sources of change are revised iron ore price forecast, a lower cost of funding, as well as an increased Solomon net present value."

The new projections were made after the earlier pronouncement of Mr Stulpner that Fortescue may resort to more capital raising to finance its proposed expansion of both the Pilbara Solomon and Chichester project over the coming two to three years.


Also, the announced debt restructuring pointed to Fortescue's ability to adroitly deal with original debt covenants that carried restrictions, which according to Mr Stulpner unshackled the company from the pressures of limitations and enabled it to inject cashflows on projects apart from its Chichester iron ore exploration.

He said that Fortescue's manoeuvrings underscored its skills in selling down assets, leaving the company in a good position "to procure external debt funding, potentially setting up funding of the Solomon project."

In contrast, Deutsche Bank analyst Paul Young advised client on selling Fortescue stocks as he raised questions on the possibility of late deliveries and cost over-runs, also raising doubts on the company's ability "to ramp up mining rates at Christmas Creek from 8mtpa to approximately 45mtpa to deliver the Chichester expansion to our 80mtpa forecast."

Mr Young said that Fortescue's projections of completing and increasing production on the Christmas Creek processing plant by the third quarter of 2011 is too ambitious to be attained in such a very limited time frame.

As of 1044 AEDT on Tuesday, Fortescue Metals were trading down by eight cents to $6.17