Strong cash flow sparks refinancing at Fortescue
In a sign of Fortescue's growing confidence from high iron ore prices, it said it would seek to renegotiate terms on the $US5 billion ($5.3 billion) credit facility that makes up the single largest chunk of its $US12 billion debt.
The $US5 billion facility is set to mature in October 2017, but Fortescue said it wanted to reduce the 5.25 per cent interest rate.
"The release of the company's quarterly results and strong financial position, together with strong market conditions, has enabled the company to pursue an amendment," it said in a statement.
The request for an extension of the repayment time may be an attempt to smooth out its debt repayment process, which is loaded toward a three-year period ending in June 2018, during which time $US9 billion must be repaid.
Fortescue has previously stated its desire to pay off much of its debt ahead of time, and has pledged to repay $140 million worth of preference shares within the next fortnight, even though they are not technically due until the March quarter of 2017.
Fortescue's debt challenge seems far more achievable now the iron ore price has avoided a slump during August and September, as it did in 2012 and 2011.
Despite predictions it would fall as low as $US70 a tonne during the spring, the price has held above $US130 a tonne.
In recent months Fortescue has won the praise of ratings agencies such as Moody's, which last month improved its outlook on the miner's debt situation.
Moody's changed its "negative" view of Fortescue's Ba3 credit rating to "positive", and indicated it could be in line for an upgrade. An improved credit rating could allow Fortescue to access cheaper debt than before.
The talk of refinancing came amid suggestions Fortescue's tenements in the Pilbara region of Western Australia may contain significant volumes of thermal coal.
The suggestions were made by gold miner Northern Star, which has an agreement with Fortescue to explore for commodities other than iron ore on Fortescue's turf.
Northern Star announced it had found the thermal coal on its own tenements, and said it believed the coal also spread onto Fortescue's nearby territory.
Northern Star said the discovery was still preliminary, but could support a coal-fired power station in the Pilbara, or a coal-to-liquids project.
Frequently Asked Questions about this Article…
Fortescue Metals is seeking to refinance its debt to extend the maturity date of its largest debt obligation and secure cheaper interest rates. This move is driven by the company's strong cash flow and favorable market conditions, allowing it to act early on its significant debt pile.
The current interest rate on Fortescue's largest debt facility, a $US5 billion credit facility, is 5.25 percent. The company aims to reduce this rate as part of its refinancing efforts.
Fortescue's strong financial position, bolstered by high iron ore prices and positive quarterly results, has enabled the company to pursue refinancing. This confidence allows Fortescue to renegotiate terms and potentially secure better interest rates.
An improved credit rating could allow Fortescue Metals to access cheaper debt. Moody's recently upgraded its outlook on Fortescue's debt situation from 'negative' to 'positive,' indicating the potential for a credit rating upgrade.
Fortescue is looking to extend the maturity date of its $US5 billion credit facility, which is set to mature in October 2017. This extension is part of a strategy to smooth out its debt repayment process.
The stability of iron ore prices, which have remained above $US130 a tonne, has positively impacted Fortescue's debt strategy. This market condition has helped the company avoid the slumps experienced in previous years, making its debt challenge more manageable.
Northern Star has an agreement with Fortescue to explore for commodities other than iron ore on Fortescue's tenements. Recently, Northern Star suggested that significant volumes of thermal coal might be present on Fortescue's territory.
The preliminary discovery of thermal coal on Fortescue's land, as suggested by Northern Star, could support the development of a coal-fired power station in the Pilbara region or a coal-to-liquids project, providing new opportunities for Fortescue.
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