Fortescue Metals Group Ltd. (FMG), the biggest seller of junk-rated mining bonds, is being reviewed by Moody’s Investors Service for a possible cut to its credit score because of a slump in iron ore prices.
Moody’s may lower the Perth-based company’s Ba3 rating, the third-highest junk grade, the ratings firm said in a statement dated yesterday, after iron ore prices fell 24 percent this month. A downgrade would affect about $7.6 billion of debt securities, it said.
“Fortescue is investing heavily in its significant capacity expansion project, and the depressed operating cash flow, arising from the drop in iron ore prices combined with the potential for ongoing short-term weakness, is raising material challenges for Fortescue,” Matthew Moore, an analyst with Moody’s, said in the statement.
Fortescue is spending $9 billion to expand operations in Western Australia’s Pilbara region, including building mines, a port expansion and a rail line. The company is considering selling some assets such as power stations to raise cash, Chief Executive Officer Neville Power said yesterday.
“The rating action reflects the considerable constraints on Fortescue’s liquidity profile due to the rapid and continuing decline in the iron ore price to levels that are below our base case expectation,” Moore said.
Fortescue, Australia’s third-biggest iron ore producer, rose for the first time in four days, climbing 1.1 percent to A$3.59 at 10:54 a.m. in Sydney trading. It has declined 13 percent this month.
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