FMG 0.64% $16.59 fortescue metals group ltd

forrest says fmg in good shape

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    Forrest says FMG in good shape

    Kate Haycock - MINING NEWS -
    Friday, 14 November 2008

    FORTESCUE Metals Group chief executive officer Andrew Forrest says his company’s decision to not sell iron ore into the spot market or try to renegotiate benchmark prices has left it in good stead with Chinese customers even as the iron market slows considerably.

    In a conference call from China the FMG boss admitted China was suffering a downturn but said FMG’s iron ore was still in demand from Chinese buyers.

    “It is tough and it is challenging,” Forrest said.

    “Yes of course there has been a considerable drop in the exuberance which typified China … but that exuberance came from unsustainable double-digit growth.”

    Forrest also responded to questions over FMG’s iron ore quality, its cash backing, and whether its expansion would go ahead.

    He said the company’s iron ore had a very good reputation with Chinese mills and was low in aluminium. He refuted claims any FMG shipments had been turned away by Chinese buyers due to quality issues.

    “It is common knowledge that a vast number of ships have been deferred – cancelled – from major iron ore producers. We at Fortescue have been able to sell every teaspoon of iron ore we’ve been able to produce,” he said.

    Currently, high aluminium content ore from FMG’s operations is being stockpiled to go through a newly constructed desand plant which will create “stable, predictable” grading ore and would be blended with already low aluminum ore from other parts of the mine.

    “The steel mills can rely on the quality of this ore,” he said.

    Forrest denied any suggestion he was in China seeking additional capital and, with $A600 million cash in the bank, he said FMG was not in need of any future funding.

    He rejected suggestions the company was struggling with its debt load and said FMG was repaying interest on its loans.

    He also said the company was held in strong regard by its customers in China because it had avoided the mistakes made by its competitors.

    “It is not Fortescue’s ships which will be deferred or turned around,” he said.

    Instead Forrest slammed the actions of the iron ore majors, saying Rio Tinto and BHP Billiton’s decision to sell iron ore into the spot market and reduce benchmark contracts, and Vale’s attempt to renegotiate already settled benchmark prices, had not impressed the Chinese mills.

    In contrast FMG was known as a friend of China, and a company which stood by China when others did not.

    One question hanging over FMG since production at Cloudbreak began in earnest has been its production costs, with rumours circulating that FMG’s cash costs were well above benchmark prices despite comments to the contrary from the company.

    Forrest today said FMG’s cash costs were around the “early $A20 mark” – significantly under iron ore prices of around $90 but warned costs would rise as the Christmas Creek expansion is brought into production.

    These expansion plans have also come under scrutiny after a decision to stand down 200 staff from contractor WorleyParsons after a “deferring” some expenditure into next year.

    Forrest was also quick to tell the media the company was definitely going ahead with its plans to grow to 80 million tonnes per annum and then 160Mtpa despite the deferral.

    However, there has also been some scrutiny of FMG’s shipping rates with the Port Hedland Port Authority publishing shipping statistics suggesting the company will struggle to export its expected production rate of 19.8Mt by the end of the year.

    Yesterday, Bloomberg reported FMG company secretary Rod Campbell said the company’s production for the year could be as low as 16Mtpa.

    Forrest said he would not make any predictions on the company’s yearly production rates until after the shutdown.

    “We are in a stable, strong operating environment,” he said.

    Shares in FMG fell another 15c today to $1.88, down from its June high of $13.15.

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