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Fortescue Pushes Forward Asset Sales Despite Iron Ore Recovery

Dow Jones Newswires - By Rhiannon Hoyle

January 24,2013

SYDNEY--Fortescue Metals Group Ltd. (FMG.AU) is pushing ahead with plans to sell stakes in its non-mining assets to pay down debt, even as rebounding iron ore prices and rising shipments suggest Australia's mining boom is far from over.
Last year, a fading mining boom weighed on the resource-rich economy--Australian miners retrenched staff and mothballed equipment in response to sharp falls in commodities prices, while the central bank cut interest rates. However, the boom is poised to resume--prices have since risen, demand from China is improving, and iron-ore producers have pledged to raise production in recent weeks.
In its quest to become the world's fourth-largest iron ore producer after Vale SA, Rio Tinto PLC and BHP Billiton Ltd., Fortescue built a vast network of land holdings, power and water infrastructure, as well as railway and port facilities in Western Australia state's remote Pilbara region, resulting in more than US$10 billion in debt.
The miner plans to sell a minority stake in its rail and port assets held by subsidiary The Pilbara Infrastructure Pty. Ltd., and could sell other assets, including power stations at its mining operations.
Nev Power, chief executive of the company founded a decade ago by billionaire Andrew "Twiggy" Forrest, said Thursday Fortescue would have a shortlist of prospective investors in Pilbara Infrastructure within the next four to six weeks, but didn't disclose the amount it could raise.
Earlier this month, RBS Morgans analysts forecast the miner could reap up to US$4 billion from the sale.
Fortescue said it is also in talks with explorers keen to scour its vast land holdings in Western Australia for commodities other than iron ore, like gold and base metals, but declined to name the companies.
"We are looking to release the value in our assets that we think has the potential to accelerate debt reduction and future expansion. Even the if iron ore price remains high we would look to do that," Mr. Power said in an interview.
Iron ore prices have risen around 70% since early September on robust Chinese demand, as well as supply disruptions in India and Brazil, prompting Anglo-Australian miners BHP and Rio Tinto to say in recent weeks they plan to boost production of the steelmaking raw material. Fortescue said Thursday it aims to ramp up production, and expects to hire more than 1,000 workers this year.
However, there have been hurdles in getting deals over the line. Talks between Fortescue and Oil Basins Ltd. (OBL.AU) fell apart earlier this month, after the miner failed to reach "acceptable terms" with the Australian oil and gas company, Mr. Power said.
But that doesn't mean deals are impossible--Fortescue signed a pact this week with Australian gold mining company Northern Star Resources Ltd. (NST.AU) that gave it the right to explore for gold on Fortescue's land.
Fortescue has around 85,000 square kilometers of land in Australia's iron-ore rich Pilbara region.
"We have other packages, or parcels, of land we are offering to the market in a similar way," Fortescue's director of developments, Peter Meurs, said on a conference call Thursday.
"We are talking to interested parties," he said without elaborating.
Mr. Power said the producer, which Thursday reported a 32% increase in quarterly shipments of the key steelmaking ingredient, remains "open-minded" about investing in other sectors. He said the natural fit would likely be to invest in energy-related projects, given the energy-intensive nature of its mining operations.
Still, he told The Wall Street Journal Fortescue will continue to focus on iron ore, at least until it reaches its target to raise production to 155 million tons by the end of 2013 from 60 million tons at the beginning of last year.