MARKETS SPECTATOR: Fortescue back with vigour
By finalising its funding deal, Fortescue's extra liquidity may enable it to recommence its Kings expansion – and reap the cost benefits that will bring.
Fortescue Metals Group this morning announced they had finalised their funding deal with lead managers Credit Suisse and JPMorgan.
As was reported late last week, the offering, which was initially launched at $US4.5 billion was upsized to $US5 billion reflecting strong demand and attractive terms. Whilst this was largely noted, the most interesting comment surrounded the possible recommencement of the recently delayed expansion projects.
Fortescue said the additional liquidity will enable detailed consideration of the recommencement of the Kings expansion, with chief executive Nev Power suggesting a phased ramp up during December was possible.
This is an incredibly positive outcome given the dire predicament the iron ore miner found itself in little more than a month ago. If Fortescue does in fact recommence the project at Kings, then it will help significantly in lowering its cash costs, which are crucial in a volatile iron ore environment and when competing against lower cost competitors in Rio Tinto and BHP Billiton.
The other encouraging piece of data released over the weekend was China’s trade figures, which easily beat forecasts. Its trade balance came in at $US27.7 billion versus expectations of $US20.4 billion. Possibly more importantly, however, were the imports which showed iron ore imports rose to the highest level in 20 months.
This further supports the notion that the recent plunge in prices and volatility has been due to an aggressive, industry-wide destocking event which now looks to be ending.