Fortescue in Talks to Order Four More Ore Ships to Cut Costs

Fortescue Metals Group Ltd., Australia’s third-biggest iron ore producer, is in talks with a Chinese shipyard to build four more export vessels, doubling a fleet that’s estimated to cost more than $500 million.

The four very large ore carriers are expected to be delivered in late 2017 and early 2018, Perth-based Fortescue said today in a statement. The initial four ships commissioned in a separate $275 million agreement last month with another unnamed Chinese shipyard are scheduled for delivery from November 2016 to May 2017.

Fortescue expects the four additional ships will cost about the same as the agreement struck last month and help reduce transport costs, Chief Executive Officer Nev Power said today on a media call.

Iron ore producers are seeking to cut costs as prices have tumbled 27 percent this year as miners in Western Australia’s Pilbara region and Brazil expand output and spur a global glut of the steelmaking ingredient. The commodity slumped into a bear market in March and banks from Goldman Sachs Group Inc. to Morgan Stanley are predicting lower prices in 2015.

Fortescue rose 6.3 percent to A$4.58 at the close in Sydney, trimming its decline this year to 21 percent.

The fleet of 8 vessels, which will each be capable of carrying about 250,000 metric tons, will transport about 12 percent of the total ore Fortescue ships through Port Hedland, the world’s biggest bulk-export port, Chief Financial Officer Stephen Pearce said on the call.

‘Core Part’

“There is a relatively limited fleet of these large vessels that are ideally suited for Port Hedland,” CEO Power said. “They will form a core part of the trade between the Pilbara and Asia as we go forward.”

Fortescue lowered its C1, or net direct cash costs, to $34.03 a wet metric ton in the three months to June 30, from $36.01 a wet metric ton a year ago, it said. It forecasts a C1 operating cost for this fiscal year of $31 to $32 a wet metric ton.

Fourth-quarter shipments were 37.6 million tons in the three months ended June 30, from 23.9 million tons a year earlier, it said. That compares with a median estimate of 38.3 million tons from five analysts surveyed by Bloomberg.

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