Fortescue Metals Group delays up to $US4bn port and rail deal

FORTESCUE Metals Group delayed the sale of infrastructure assets in Australia’s Pilbara region worth up to $US4 billion, frustrating smaller miners who hoped a deal would unlock access to key rail and export ports.

Fortescue, the world’s fourth-largest iron ore producer by output, said it would miss a deadline to conclude a sale of a minority stake in its The Pilbara Infrastructure unit by the end of the month as it deepened talks with a shortlist of investors.

“The level of interest generated has necessitated a longer period of evaluation than previously contemplated,” the company said in a statement today.

Although negotiations over selling a stake in its infrastructure were “substantially advanced”, Fortescue said the outcome would now likely be known between July and September.

Fortescue began looking for a buyer for part of the infrastructure unit late last year as it sought to shore up its balance sheet in the wake of a sharp fall in iron ore prices. At that time, the Perth-based company renegotiated billions of dollars in debt after being forced into emergency talks with its lenders.

Bringing in a new investor to rail network and port berths is risky for Fortescue. Large miners such as Rio Tinto and BHP Billiton like to retain sole ownership of vital export infrastructure because sharing it with rivals can drive up costs and make scheduling of cargoes difficult to coordinate.

However, infrastructure bottlenecks have also stifled growth in iron ore, Australia’s biggest export industry. Smaller companies in the Pilbara – which accounts for two in every five tons of iron ore traded by sea – cannot afford to build new rail lines. Without an export route, many deposits of the steelmaking material remain untapped.

Hong Kong-backed Brockman Mining last month said it was seeking the right to access Fortescue’s railway to help transport iron ore to port from its Marillana project. Atlas Iron is also talking to companies with infrastructure in the region, and says two of its new mines could link to Fortescue’s rail network.

Fortescue, which has already sold its Solomon power station and a 25 per cent stake in its Nullagine joint venture to reduce its huge debt pile, said it wasn’t under any pressure to conclude a sale.

“We are very pleased with the progress to date, having shortlisted potential investors and advanced to the next phase of the commercial process,” chief executive Nev Power said in a statement. The sales process is being led by Lazard and Macquarie Capital.

Fortescue’s first-half profit fell by 40 per cent, hit by a collapse in iron ore prices, and the company subsequently didn’t pay a dividend. Fortescue – founded a decade ago by billionaire Andrew “Twiggy” Forrest – expects to report $US10bn in net debt when its fiscal year ends on June 30.

Analysts have estimated a sale of up to 40 per cent of the of its rail-and-port assets could enable it to pocket up to $US4bn and reduce its gearing, or debt-to-equity, from around 60 per cent to 40 per cent by the end of the 2014 fiscal year.

Iron ore prices have been among the most volatile in the commodities sector. In the past six months alone, prices have rebounded on supply disruptions due to bad weather and an export ban in India, only to fall again on worries over China’s demand as its economy cools. Prices last month touched an eight-month low of $US110.40 a tonne.

Fortescue today also cut its guidance for iron-ore shipments after wet weather in recent weeks hampered exports.

Fortescue said it now expected to ship between 80 million and 82 million tonnes of iron ore in the year to June 30, compared with earlier guidance of between 82 million and 84 million tonnes.

Fortescue Metals Group

Source : The Australian

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