Fortescue Metals Groups, one of the word’s leading iron ore producers, is well on its way to pay off its $9 million debt raised to finance a recent extensive mine expansion program.
According to an article on Reuters, increase in demand and strong prices, particularly in China, have enabled the company to perform strongly and wipe out a significant chunk of its debt.
Fortescue’s massive expansion program has targeted China’s growing market as their primary objective, and recent positive results have seen them collect hefty rewards for their investment.
The company’s third quarter production report reveals strong financial performances and Fortescue managing Director Nev Power expressed his delight over the current state of affairs.
“We are past peak debt”, he said in a media briefing on Thursday.
Prices for iron ore nearly doubled since hitting rock bottom in July, which proved decisive for the company’s rapid growth.
Ric Ronge, a portfolio manager at Pangana Capital, pointed out that Fortescue was able to capitalize on the fact that everything has played out to their advantage.
“A confluence of things has worked in their favor and they’ve delivered (on their projects) and been able to perform well,” says Mr. Ronge.
Even though experts have constantly predicted reduction in prices due to greater supply and decline in demand from China, Fortescue were able to maintain excellent results and sell at least 62% of its iron ore at the benchmark prices of $130 dollar per tone for much of September.
The company’s current net debt amounts to $9.3 billion, $128 millions of which have been already paid in redeemable preference shares.
According to Mr. Power, they are expecting to splash down further “$1 billion-plus” in the next few months.
Their calculations show that total September quarter shipments jumped 61% in comparison to last year, and 4% over the previous quarter.
The company was able to sell for an average $121 per dry metric tone, with UBS insisting on imminent drop in prices before the end of the year. Despite that, Mr. Power is confident that the positive trend will continue.
High prices and Fortescue’s improved balance sheet have also relieved the pressure to sell a minority stake in its TPI rail and infrastructure unit, which according to analysts could generate a A$4 billion in profit.