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Fortescue Loans Alleviate Liquidity Challenges, Moody’s Says

Fortescue Metals Group Ltd. (FMG), the biggest seller of junk-rated mining bonds, has eased its liquidity challenges with $4.5 billion of new loans after iron- ore prices slumped, Moody’s Investors Service said.

“The new facility will substantially alleviate Fortescue’s liquidity pressures, which escalated rapidly owing to the dramatic drop in iron-ore price in the past couple of months,” Moody’s said in an e-mailed statement. A recovery in iron ore is also improving the outlook for the company meeting its expansion goals, it said.

Australia’s third-biggest iron-ore producer said Sept. 18 the new facility, underwritten by Credit Suisse Group AG and JPMorgan Chase & Co., extends the earliest repayment date of the company’s debt to 2015. Fortescue started talks with banks to seek changes to loan terms after iron-ore prices this month fell to near a three-year low, forcing the company to cut spending on an expansion.

Iron ore has recovered 23 percent since falling to $86.70 a metric ton on Sept. 5, the lowest since October 2009, and last traded at $106.40 a ton, according The Steel Index Ltd.

Perth-based Fortescue fell 0.3 percent to A$3.60 at the close of trading in Sydney. The benchmark S&P/ASX 200 Index dropped 0.5 percent.

Assuming prices remain around $100 a ton for the next six to nine months, Moody’s expects Fortescue to have enough funds for mining operations and its revised expansion to produce 115 million tons annually by mid-2013, it said. The original expansion plan was to produce 155 million tons, or about triple of current production volumes.

Fortescue may sell a minority stake in its Chichester iron- ore operation, valued at more than $2 billion, the Australian Financial Review reported today, without saying where it got the information. Canada’s Teck Resources Ltd. (TCK/B) and commodity trader Glencore International Plc (GLEN) may be potential buyers, the paper said, citing unidentified sources.

Nathan Vass, a Perth-based spokesman for Fortescue, declined to comment today on the report when contacted by phone, reiterating the company’s Sept. 18 statement that it had received “strong interest” by a range of parties for some of its assets.

The company is currently evaluating those approaches, according to the statement on Sept. 18.

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

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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