Fortescue amends iron ore guidance

Fortescue Metals Group has updated its iron ore price guidance to reflect current price realisations approximately 65 per cent of the current Platts 62 CFR Index benchmark.

The slower than expected recovery is due in part to the slowing of Chinese construction activity, with production restrictions having been extended in certain provinces. The percentage is expected to increase as market conditions continue to stabilise.

Elizabeth Gaines, chief executive officer of Fortescue, reiterated the company’s strong earnings for the first half of the 2018 financial year.

“Fortescue’s position as the lowest cost supplier of iron ore into China supports continued delivery of strong underlying earnings and cashflows as evidenced by the US$1.8 billion ($2.3 billion) of underlying EBITDA and $US1.4 billion of cash from operations generated in the first half of FY18,” she said.

The company has also announced the voluntary redemption of $US1.552 billion, representing another important step in the revision of FMG’s debt repayment strategy. The refinancing will be used to aid with debt repayments FMG is due to pay off in the form of 9.75 per cent senior secured notes by 2022.

A remainder of $US160 million is expected to be retired from the company’s operating cash flow. The move is part of an overall $US2.16 billion debt financing announced earlier this month, part of FMG’s ongoing corporate strategy of transition into an investment grade company with a low-cost, flexible debt structure.

The $US1.552 billion figure is due to be settled by April 27. Once the restructure is complete, FMG’s overall annual borrowing costs will be reduced by $US130 million

FMG chief financial officer Ian Wells commented on the redemption calling it an important milestone for the company.

“The successful implementation of this strategy reduces total debt and at the same time delivers a flexible, low-cost capital structure for the business,” he said.

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