FMG to switch to gas, pay down $2.5 billion in debt

Fortescue Metals boss Nev Power has told the Diggers and Dealers conference that FMG has plans to make $2.5 billion in debt repayment over the next 18 months.

“That will be as fast as we can do it, we’re very focused on paying down that debt,” Power said.

The chief executive said that even though the FMG debt level of $7.2 billion was sustainable, the company holds a target for 40 per cent gearing, and is making this a business priority.

Power emphasised the importance of a changeover to gas power rather than diesel for making the necessary savings for an improved cost structure that would free up cash flow.

“If we could switch to all gas throughout our operations, it would be around 50 per cent of our current diesel costs, $400 million dollars, but how much of that we are able to achieve, because a lot of that is technology driven, how quickly we can get trucks to burn natural gas.

“Our first priority will be switching our power stations, the Solomon Power Station will switch to gas by trucking in the next month or so.”

FMG have already paid off US$3.1 billion in debt due to reaching a production rate of 155 megatonnes, a massive achievement which may see Power receiving the Digger of the Year award at tomorrow night’s gala dinner in Kalgoorlie.

Power made sure to allay any industry fears about China’s demand for Australian iron ore, which he said was certainly continuing to grow, with their imports up 20 per cent in the YTD.

In response to questioning about future of iron ore pricing, Power said three factors were at stake.

“One is the supply response, there’s been a lot of new supply come into the market, and that means its taking a bit of time for the industry to restructure, for the higher cost producers to cut or stop production,” he said.

“Second is the relatively large stockpile at the port: While it’s not large in terms of the consumption of iron ore in China it’s much larger than is needed and that means there’s a buffer there that is… dampening down the supply response.

“When that stockpile comes down we’ll see the iron ore price respond more quickly.”

Power said the third factor was continuing tight credit in China, as the government tried to manage growth and inflation.

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