Shares of Fortescue, which today was cut to hold from buy at Royal Bank of Scotland Plc, dropped 8.5 percent to A$3.12, its lowest close since June 9, 2009. Smaller rivals including Atlas Iron Ltd. (AGO) fell 4.8 percent, while Gindalbie Metals Ltd. (GBG) plunged 11 percent.
Iron ore fell to the lowest in almost three years on concern slowing growth in China, the biggest buyer, will curb demand in the world’s second-largest economy. Fortescue yesterday cut its full-year spending forecast by 26 percent to $4.6 billion, joining other miners in delaying expansions.
“We are really quite concerned looking at prices around these levels because you are going to see pressures on some of the balance sheets,” said Chris Weston, an institutional trader at IG Markets Ltd. in Melbourne. “We’re going to see more production cuts, capex cuts and it will hurt profitability.”
Iron ore for immediate delivery to the Chinese port of Tianjin tumbled 2.5 percent yesterday to $86.90 a metric ton, the lowest since Oct. 19, 2009. Brazil’s Vale SA, the top iron- ore producer, said last month that China’s “golden years” were gone.
Fortescue remained under review for a debt-rating cut as a result of the drop in prices, Moody’s Investors Service said yesterday following the project deferrals. A rebound in iron ore to about $115-$125 a ton will “substantially reduce concerns around liquidity and covenant pressure,” it said.
The company may face a $1.7 billion expansion funding shortfall on lower cash flow estimates, Citigroup Inc. said today in a report.
Fortescue said today it will raise $300 million from the sale of a power plant to TransAlta Corp. (TA) The agreement with TransAlta, Canada’s largest listed power generator, will provide long-term security of supply to the 60 million metric ton a year Solomon mine, Perth-based Fortescue said in a statement.
The company last month flagged plans to sell non-core assets including power stations to help raise funds after reporting a 7.1 percent cost overrun to $9 billion in expansion costs.
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