Fortescue Said to Discuss Refinancing as Iron Ore Rebounds

  • Price of steelmaking material has climbed back above $60 a ton
  • Miner's bonds have rallied, making buybacks more expensive

Fortescue Metals Group Ltd., seeking to take advantage of the resurgence in iron ore prices, is talking to investors about refinancing some of its $8.1 billion in debt obligations, according to people with knowledge of the matter.

The world’s fourth largest iron-ore exporter met fixed-income investors in the U.S. last week and may look to tackle some of its higher-coupon borrowings first as part of the plan, said one of the people, asking not to be named as the discussions are private. The talks come amid a price rebound that’s taken the steelmaking ingredient back above $60 a ton for the first time since June.

“Fortescue has consistently communicated its commitment to further debt reduction and will continue to take advantage of market conditions to repurchase and retire outstanding securities as opportunities present,” the company said in an e-mailed statement.

The talks with investors are continuing and no final decision has been made, said the people with knowledge of the matter.

Perth-based Fortescue’s shares fell 2.9 percent to A$2.71 in Sydney trading, trimming their decline this year to 45 percent.

Fortescue has been repurchasing debt after the earlier slump in prices for iron ore dragged down the price of its bonds and pushed the miner to cut costs. In the second half of last year, Fortescue repaid $1.1 billion of debt, trimming its net borrowing pile to $6.1 billion as of Dec. 31, the company said in a statement last month. The company has a total of $8.1 billion of debt outstanding, it said in a Feb. 24 presentation, including $4.8 billion of loans due in 2019.

Bonds Rally

But buying back debt is becoming more expensive for the Australian miner as its bonds rally along with a surge in the price of iron ore. Its $2.16 billion of 9.75 percent notes maturing in 2022 rose as high as 105.5 cents on the dollar this week, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That was the first time Fortescue’s largest outstanding bond has traded above par since November, having dropped as low as 81 cents on the dollar in January.

The benchmark price for 62 percent grade iron ore in China this week climbed as high as $63.74 a ton, having bounced back from a low of $38.30 in December. A 19% surge on Monday was the biggest one-day gain on record for the material.

Fortescue and Vale SA, the world’s biggest supplier of the steelmaking material, announced a pact Monday to develop joint ventures to produce iron ore that meets the benchmark standard most in demand in China. Vale can take a minority stake in Fortescue of as much as 15 percent under the agreement, the companies said.

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