Demand for iron ore strong: Fortescue

Fortescue, along with other iron ore miners, has been cutting costs in an attempt to counter a plunge in the prices paid for Australia’s biggest export.

Large global iron ore suppliers are winning savings as they raise output to fully utilize railroads to ports, while producers in Australia are also being boosted by lower fuel prices and a declining local currency, according to Bloomberg Intelligence.

“The results demonstrate Fortescue’s ongoing commitment to consistent, sustained high performance across the entire business,” Fortescue CEO, Nev Power, said.

In its decade-long quest to break the dominance of Vale SA, Rio Tinto PLC and BHP Billiton Ltd.in iron-ore production, Fortescue borrowed to build a vast network of landholdings, power and water infrastructure, and railway and port facilities in Australia’s iron-rich Pilbara region.

Earlier this year, Fortescue refinanced a few of its debt, accepting an eye-watering 9.75 per cent interest rate on its newest bonds to push out its earliest maturity to 2019 from 2017.

Despite the debt pile however, Fortescue’s Chief Financial Officer, Stephen Pearce, said, “Fortescue’s debt structure has high levels of flexibility and no maintenance covenants.”

According to Fortescue, during the September quarter it mined 45.1 million mt of iron ore, seven percent more than the previous quarter and up five percent year on year.

Fortescue has bought back $384 million of debt since July 1 and trimmed its net debt to $6.6 billion as of September 30, the producer said in the statement. It also covers the historic and forecast data on global iron ore production, production by country, historic and forecast consumption and major exporting and importing countries. Fortescue confirmed it intends to lower its gearing to 40%.

He stopped short of setting a timeline for that target. “If that takes 12 months or 18 months, it doesn’t really matter”. If China continues to cut back its own production, in favour of lower-cost Australian iron ore imports, then Australia should continue to gain market share.

“We’ve got that balance right”, Pearce said Thursday in the interview after the company reported first-quarter production costs fell 24 percent.

The miner shipped 41.9 million tonnes of iron ore during the quarter, down slightly from the previous three month period, at an average price of $US50 per tonne. He forecast economic growth in China, the world’s top steelmaker, to decline to between 4-5 per cent on average until 2030, from roughly 7 per cent now.