Fortescue to Revisit Bond Markets for Expansion, Merrill Says

Fortescue Metals Group Ltd., Australia’s third-biggest producer of iron ore, will return to the bond market to raise funds for an $8.4 billion expansion to be finalized today, Merrill Lynch & Co Inc. said.

The expansion will require further financing, with Fortescue intending to “revisit the bond markets,” Sydney- based analyst Peter O’Connor said in a note dated yesterday. In October, Fortescue sold $2.04 billion of five-year notes, the biggest sale of junk-rated dollar bonds by an Australian company.

The board of the Perth-based company is expected to sign off on the expansion of output at its Pilbara operations in Australia to 120 million metric tons from the current 55 million tons before its annual meeting today.

When contacted by Bloomberg News, Fortescue Spokesman Cameron Morse said it was premature to comment on the expansion ahead of the board meeting. He spoke by phone from Perth.

Fortescue’s longer-term target to increase output to 155 million tons by 2017 is “aggressive,” O’Connor wrote in the note. Plans to expand come amid rising iron ore prices. The average price for ore delivered to China was $145 a metric ton in the first half, according to The Steel Index. That’s more than double the average $69 a ton for the same period last year.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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