Fortescue to Repay Early $2 Billion in Bonds to Cut Debt

Fortescue Metals Group Ltd., the most indebted junk-rated mining company, is accelerating repayment of $2.04 billion in bonds to help cut debt and lower interest payments.

The company, Australia’s third-biggest iron ore exporter, will repay $1 billion of the senior note due to mature in 2015 on Dec. 20, Perth-based Fortescue said today in a statement. The remainder will be paid in coming months, subject to market conditions, it said.

“We will be at investment grade metrics within 18 months,” Chairman Andrew Forrest told reporters in Perth after the company’s annual meeting today. “We were looking a little more conservative six months ago and we were talking about only hundreds of millions but production is coming up, the plant construction capital is coming right down and the iron ore price has held.”

Fortescue this week refinanced a $4.95 billion loan to reduce the interest rate by 1 percent to 3.25 percent. The company wants to cut its debt after iron ore prices gained this year, and before a predicted four-year slide in the price of its sole product.

Fortescue rose 2.9 percent to A$5.77 in Sydney, taking this year’s gain to 24 percent.

Pay-down Priority

“We have announced we have over $3 billion cash in the bank and the company has plenty of options and paying down debt is high priority,” Forrest said.

Standard & Poor’s this week boosted the miner’s credit rating to BB, or two levels below investment-grade, citing a continued increase in production scale and cost reduction. S&P said its outlook is “positive.” The upgrade and early debt repayments follow higher-than-expected iron ore prices this year after a plunge forced the company to negotiate $5 billion in new loans in September last year.

BlackRock Inc., which runs the $8.1 billion World Mining Fund, boosted its stake in Fortescue to 5.2 percent, Fortescue said today in a statement.

Iron ore, Australia’s biggest export by value, entered a bull market in July as China replenished stockpiles that shrank in March to the lowest level since 2009. Prices have rallied 23 percent from this year’s low on May 31 to $135.90 a metric ton yesterday, according to The Steel Index Ltd.

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