Fortescue has announced it will not pursue its previously flagged US$2.5 billion senior notes offering and refinancing plan.
According to the miner "the company's disciplined cost objectives were not met".
It initially planned to raise the money via debt facilities, but then changed tack and opted for a senior secured note offering, in an effort to provide capital as the low iron ore price bit into its margins.
It planned to launch a senior secured debt issue and a offer to holders of its unsecured notes to tender their existing notes for repurchase, subject to a cap on the 2019 notes.
The miner invited holders of its 6 per cent senior notes due in 2017, all of the 6.857 per cent senior notes due in 2018, and its 8.25 per cent notes due in 2019 to tender for cash.
It was offering US$1002.50 for its 2017 notes, US$1007.50 for its 2018 notes, and US$970 for its 2019 notes, with an added US$30 early participation payment.
Its wider plan for refinancing also saw an extension to its existing bank facilities, extending the maturity of its existing US$4.9 billion senior secured credit facility, which means its debt will now mature beyond mid-2021.
Fortescue is now withdrawing its planned offering due to ongoing volatility in US credit markets.
"While Fortescue received investment grade ratings on the secured offering and significant investor interest int he proposed refinancing, volatility in the US credit markets resulted in terms and conditions that did not meet the company's objectives," FMG said in a company statement.
"Accordingly, Fortescue has not chosen to pursue the refinancing at this time."
CEO Nev Power explained although the miner's debt was not set to matured until April 2017, the point of the refinancing plan was to extend its maturity profile and minimise interest costs.
However "debt capital markets were not favourable at this time and as a result we think it is a disciplined and prudent decision to defer the voluntary refinancing at this stage," Power said.
Despite the reversal of its refinancing plans, FMG states it has cash on hand and remains operating cash flow positive in this current market, which "will provide a strong basis for voluntary repayment or refinancing of debt well in advance of maturities".
Approximately 60 per cent of its debt is available for early repayment, or another tilt at refinancing it the miner executes that option.
FMG's shares currently stand at just below $2 per share, the lowest point since January 2009 – during the height of the Global Financial Crisis – when shares briefly dipped below the $2 watermark.
It is little surprise the miner withdrew its planned offering, as the sector itself is facing the bottom of the market as capital dries up and investors become more wary of the market.
A major indicator of the dire position of the market is the number of small cap mining companies being used as a vehicle for backdoor listing.
The most recent example of this is ASX-listed Capital Mining's 'acquisition' of a medical marijuana company in Canada.
According to Deloitte CIS mining leader Nikolay Demidov: “The lack of capital available to juniors may force a dramatic industry collaboration.”
“Some projects will need to be shelved, most development-stage projects will be put on hold, and many distressed companies should consider ways to strike a merger of equals,” he said.
According to IBISWorld, after the settling of the current uneven commodities market an era of consolidation will take hold, with more mergers and acquisitions as a result of these tight capital markets.
Global mining stocks are down approximately 43 per cent since 2010, with much of the fall in the iron ore space.
This downward trend has made “equity investors leery of the sector, according to Deloitte, and “as a result 2013 marked the one of the worst years in history for new mining listings".
Chinese investors have begun cooling off, while traditional investors are also becoming extremely selective in their capital financing, Deloitte said.
In light of this current market situation it is likely Fortescue will exercise its existing option to repay debt in its own time and attempt to wade out the current iron ore slump, which is not predicted to ease any time soon, with Westpac economists stating the price is unlikely to recover until at least next year.