Fortescue lender still looking for backer

FORTESCUE Metals Group's main lender has extended its search for partners on a $US1.5 billion loan until the end of the month as blue-chip mining stocks failed to respond to a rebound in commodity prices as project delays and slowing Chinese economic growth battered business confidence.

By InvestSMART · 12 Sep 2012

By InvestSMART ·
12 Sep 2012

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The self-styled "new force in iron ore" held a teleconference last week to reassure lenders about the company's financial position after a series of dramatic spending cuts, but Bank of America Merrill Lynch, the loan's underwriter, has yet to find willing parties to share in the spoils, says a Bloomberg report.

Fortescue shares lost 18?, or 5 per cent, to close at $3.37 yesterday.

Copper and aluminium traded near four-month highs, and spot iron ore prices spiked 7 per cent from Friday to $US95 a tonne after Beijing last weekend announced plans to plough as much as 1 trillion yuan ($A152 billion) through the economy via the construction of yet more airports, railroads, freeways and water treatment plants.

But analysts and commodity traders were unsure about the legitimacy of the plans and whether the rally in commodity prices could be sustained.

"This isn't new stimulus the stockmarket shouldn't be overreacting to this sort of thing," said Yi Xianrong, an economist with the Chinese Academy of Social Sciences, a leading government think tank.

In a note to clients, UBS analyst Wang Tao warned investors not to take the proclamations of Beijing's all-powerful National Development and Reform Commission at face value.

Pointing out the NDRC had merely published project approvals from recent months in reaction to weak economic data last month, Ms Wang downgraded her forecasts for full-year GDP from 8 per cent to 7.5 per cent.

Industrial output in China fell to a three-year low in August, according to official data last week, while on Monday, the customs office reported a steep 2.6 per cent decline in imports last month.

Back home, miners posted the biggest fall of any sector in National Australia Bank's latest business sentiment gauge, tumbling 14 points to a reading of minus 13 for last month, compared with a fall of 5 points to minus 2 in overall business confidence.

Murray Bailey, the chief executive of the Australian-listed Yancoal Australia controlled by Chinese state-owned enterprise Yanzhou Coal said the information he has suggests: "There's probably a couple hundred million tonnes of surplus capacity in the steel industry in China that has yet to be wound down..

"Certainly [in] the metallurgical coal game and iron ore, there's several more months if not quarters of weakness remaining."

Shares in BHP Billiton gained 0.4 per cent to $32.58 and Rio Tinto lost 0.3 per cent to $54.53 yesterday.

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Frequently Asked Questions about this Article…

What’s the status of Fortescue’s US$1.5 billion loan and why is the lender still looking for a backer?

Fortescue’s main lender — with Bank of America Merrill Lynch underwriting the deal — has extended its search for partners to share a US$1.5 billion loan until the end of the month. The underwriter has not yet found willing parties, and the lender wanted extra time after Fortescue held a teleconference to reassure creditors following a series of significant spending cuts.

Why did Fortescue shares drop and what was the market move?

Fortescue shares fell amid concerns about the company’s financing and broader weakness in mining sentiment. According to the report, shares lost about 5% and closed at US$3.37 as investors reacted to the loan uncertainty and industry headwinds.

How did iron ore and other commodity prices move, and what prompted the spike?

Spot iron ore prices spiked about 7% to roughly US$95 a tonne, while copper and aluminium traded near four-month highs. The moves followed Beijing’s announcement of plans to inject up to 1 trillion yuan into infrastructure projects — but traders and analysts questioned how lasting the rally would be.

Can investors rely on China’s announced stimulus to support commodity prices?

The article highlights caution: economists and analysts urged skepticism. UBS analyst Wang Tao warned against taking National Development and Reform Commission proclamations at face value, and Yi Xianrong from a leading Chinese think tank said this isn’t new stimulus. Some observers noted the NDRC was publishing recent project approvals in response to weak data rather than launching a guaranteed big stimulus.

How is the slowdown in Chinese economic growth affecting mining companies?

Weak Chinese data is weighing on miners: industrial output hit a three-year low in August and imports fell 2.6% month-on-month. Domestic sentiment also weakened — miners posted the biggest fall in NAB’s business sentiment gauge, and industry voices such as Yancoal’s CEO warned of hundreds of millions of tonnes of surplus steel capacity, suggesting months or quarters of continued weakness for metallurgical coal and iron ore.

What did industry analysts say about whether the commodity rally can be sustained?

Analysts and commodity traders were uncertain about the rally’s legitimacy and longevity. While prices jumped after China’s announcement, market commentators questioned whether the projects and spending plans represented concrete, sustained demand that would keep metals prices higher.

How did other major miners perform in the market during this news?

Market moves among big miners were mixed: BHP Billiton’s shares gained about 0.4% to US$32.58, while Rio Tinto’s stock fell around 0.3% to US$54.53, reflecting uneven investor reactions across the sector.

What practical steps should everyday investors monitor given this Fortescue and commodity market news?

Keep an eye on a few key things mentioned in the article: updates on Fortescue’s loan and any new lender partners, iron ore and base-metal price trends, confirmed details of China’s infrastructure projects (not just announcements), and company-specific news from major miners. Those factors drive mining stock performance and can help investors assess risk and timing without relying on hype.