Fortescue bid to sell power plant in pursuit of savings

FRESH from unveiling a $US600 million blowout on its Solomon development, Fortescue Metals Group has continued its hunt for savings by trying to offload its 120 megawatt power station at the future mine site.

FRESH from unveiling a $US600 million blowout on its Solomon development, Fortescue Metals Group has continued its hunt for savings by trying to offload its 120 megawatt power station at the future mine site.

Industry sources say the sale of the Solomon gas and diesel-fired plant, being built by contractor UGL, is being handled by Macquarie Group. It should net Fortescue at least $200 million based on the most recent power station sale in WA, which was sparked by the struggles of infrastructure group Babcock & Brown in 2009.

Fortescue, chaired by Andrew Forrest, declined to comment yesterday. However, the miner said on Tuesday that it would raise an additional $US1 billion in debt to fund rising construction costs at Solomon, meaning the sale of its power station could be used as a contingency, or to potentially reduce the amount of debt it has to raise.

There is a long list of potential bidders for Fortescue's Solomon power station, given its potential role as part of a mooted $8 billion network of interconnected power stations and transmission lines in the Pilbara being assessed by competing infrastructure providers.

These include pipeline company APA and utilities Alinta, Canadian giant ATCO and state-owned Horizon Power.

Korean and Japanese firms are also circling the state for power investments, buoyed by forecasts from the Chamber of Minerals and Energy that incremental power demand from energy-hungry miners could increase by 2200MW by 2015.

The proposed sale of the Solomon power station continues Fortescue's attempts to outsource operations to offset cost increases. A $US200 million cost escalation at Solomon announced last year was offset by handing the contract for construction of its Chichester mine ore processing facility to Mineral Resources, allowing Fortescue to stick to its $US8.4 billion expansion budget. Tuesday's blowout increases the budget to $US9 billion.

Analysts were damning yesterday of Fortescue's announcement to raise more debt, with Deutsche Bank accusing the company of disguising $US2.6 billion of expansionary capital expenditure as "sustaining" capital expenditure.

"As such we see the [Solomon] expansion now as a $US13.2 billion project," Deutsche wrote.

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