Fortescue Loans Alleviate Liquidity Challenges, Moody’s Says

Fortescue Metals Group Ltd., 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. and commodity trader Glencore International Plc 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.

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