Fortescue Metals Gains on Plan to Cut Debt by $700 Million

  • Producer says repayment will generate $26 milliom in savings
  • Miner has repaid $3.6 billion of debt since July 2015

Fortescue Metals Group Ltd., the world’s No. 4 iron ore exporter, will repay $700 million of a term loan as part of its drive to cut debt. Its shares gained.

The repayment brings to $3.6 billion the amount of debt cut since July 2015 and will deliver annual interest savings of about $26 million, Perth-based Fortescue said Tuesday in a statement.

Fortescue’s “debt runway is looking substantially better placed than just six months ago,” Peter O’Connor, a Sydney-based analyst with Shaw and Partners Ltd., said in a note to clients. Net borrowings fell to $5.2 billion as of June 30, Fortescue said last month.

The producer’s shares rose 0.9 percent to A$4.74 in Sydney trading, the biggest advance since Sept. 9. Fortescue has surged 153 percent this year and is the best performer among Australia’s 100 largest companies.

Fortescue is benefiting as the benchmark iron ore price has rallied about 33 percent in 2016 and from its efforts to cut costs, which have plunged about 65 percent since 2013. Improving margins and the producer’s work to reduce debt means it’s on course to achieve an investment grade credit rating as soon as mid-2018, according to Deutsche Bank AG.

The producer’s rating won’t immediately be affected by the latest debt repayment, S&P Global Ratings said Tuesday in a statement. Fortescue is rated one notch below investment grade by Fitch Ratings and two steps lower by S&P, while Moody’s Investors Service has it at the second-highest speculative grade ranking.

“We will continue to apply our free cash flow to repay debt, lowering our gearing and strengthening our balance sheet,” Chief Financial Officer Stephen Pearce said. Fortescue may reduce debt by about $2 billion by the middle of 2017, Pearce said in a June interview.

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