Fortescue Metals may use $3b cash pile to reduce debt
Fortescue Metals chairman Andrew Forrest has raised the prospect that the company could wipe another big chunk off its debt by the end of the year, putting efforts to deleverage its balance sheet further ahead of schedule.
The iron ore miner said on Wednesday it would repay $US1 billion of $US2.04 billion in senior unsecured notes next month, in a move that will save an estimated $70 million a year in interest.
Speaking after Fortescue's annual meeting in Perth, Mr Forrest, who is the company's biggest shareholder, said he would be encouraging management to continue paying down debt, "so don't be surprised if in the next several weeks to several months we do another $US1 billion". In August, Fortescue chief financial officer Stephen Pearce indicated the company was expecting to make modest inroads into its $US12 billion debt pile this year before graduating to bigger repayments, in the order of billions, in 2014.
"We were looking a bit more conservative six months ago," Mr Forrest said. "We were talking about only hundreds of millions but production is coming up, capital is coming right down and the iron ore price has held.
"I'm not going to push management's hand on that but we've announced we have over $3 billion cash at bank so the company's got plenty of options and paying down debt is a high priority."
The senior secured notes mature in late 2015. Their early repayment is expected to save Fortescue $70 million a year in interest.
Last week the company repriced and extended the maturity on its biggest debt obligation, a $US5 billion term loan. The 100-basis-point reduction in the margin on the facility is expected to result in a $50 million-a-year saving in interest, while scope remains for the margin to be reduced further.
Fortescue put the $US5 billion facility in place last year, averting a liquidity crisis that threatened when the price of iron ore crashed to $US85 a tonne in September.
Addressing perceptions that the company remained a high-risk proposition, Mr Forrest said there had been "times when my knuckles have whitened a little, but there's always been a plan B".
The meeting was uneventful, save for the Australian Shareholders Association voting against Fortescue's remuneration report due to concerns over Mr Forrest's loan arrangements with executives allowing them to buy shares.
The report passed without incurring a strike. Fortescue shares gained 13¢ to $5.74 on Wednesday.