Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest iron ore producer, expects to complete talks with potential partners soon to develop the Northstar magnetite project amid falling prices of the raw material.
“We’ve been in discussions with a number of parties and we’re hopeful of those being finalized in the near future,” Neville Power, chief executive officer of the Perth-based company, said in an interview in Sydney.
Fortescue, the biggest seller of mining junk bonds with $7.04 billion of notes outstanding, based on data compiled by Bloomberg, is under pressure from iron ore prices slumping to a three-year low as demand in China slows. The company is spending $9 billion to almost triple production by the middle of next year at its operations in Western Australia’s Pilbara region, expanding port facilities, mine sites and rail lines.
Northstar is adjacent to Fortescue’s Glacier Valley magnetite deposit with Baosteel Group Corp., China’s second- largest steelmaker. Fortescue has had inquiries from Chinese steel mills as well as companies from India and the Middle East, Power said in January.
“It’s not something we see ourselves doing with our own balance sheet,” Power told reporters today after a presentation. “There are opportunities to bring in strategic partners to change the funding model.”
The company also is considering selling some of its assets such as power stations, Power said. He reiterated today Fortescue has no plan to raise additional debt, although it has the ability.
“We’re not entertaining fire sales or anything like that,” he said.
The price of iron ore for immediate delivery to the Chinese port of Tianjin, a benchmark for Asia, has declined about 50 percent over the past year. It has slumped 33 percent since the end of June to $90.30 a metric ton yesterday.
“We see very volatile prices at the moment,” Power said. “That will settle down in the next month or two, and return to $120 plus right through the balance of the year.”
Fortescue needs iron ore prices to average above $115 a ton to avoid refinancing its first major debt repayment of $2.4 billion in 2015, Credit Suisse AG resources analysts Matthew Hope and Michael Slifirski wrote in a Aug. 27 report.
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