Fortescue credit rating improves with S&P upgrade

Fortescue Metal Group’s credit rating has been upgraded by S&P Global Ratings in a sign that the company’s productivity and efficiency initiatives are working.

S&P has raised the Perth-based iron ore miner’s credit rating from BB to BB+, while also reporting the company’s long-term rating outlook is stable.

Last week Fortescue announced another debt repayment of US$1 billion ($1.36 billion), which followed a US$700 million payment it made in September.

An S&P note explained, “We consider the additional debt repayment has strengthened the company’s resilience to iron ore price pressure,” and that “Fortescue is at the lowest end of the seaborne cost curve delivered to China.”

Fortescue chief executive officer Nev Power said the company’s productivity and efficiency initiatives had achieved sustained cost reductions.

“Significant free cash flow has continued to be applied to debt repayment,” Power said.

“We are again pleased that S&P have acknowledged the strength of Fortescue’s balance sheet through the continued execution of our debt repayment strategy.

“This has led to improved credit metrics, which is now reflected in S&P’s upgrade of the issuer credit rating to BB+, and the senior secured rating to investment grade BBB-.”

Meanwhile, Power yesterday confirmed media reports that a joint venture between Fortescue and Brazil’s Vale to customise orders for Chinese steelmakers was now doubtful.

Fortescue signed a non-binding memorandum of understanding (MoU) with Vale in March to create a joint venture and blend their product together.

“Negotiations are continuing between the parties on an amicable and commercial basis, however, it is looking less likely that any transaction will be completed” Power said.

“Fortescue’s relationship with Vale remains strong while discussions are continuing more slowly than originally anticipated.”

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