Fortescue announces expansion slow down in Australia

September 5, 2012

In another set back for Australian mining, Fortescue Metals Group Ltd., the world’s fourth-largest iron-ore producer, said it is slowing an aggressive expansion of mines in Australia by slashing spending and cutting jobs, as a cooling Chinese economy hits prices for industrial commodities.

The company has set a near-term production target of 115 Mt/a (127 million st), without saying when it expects to achieve this. Fortescue had previously targeted an expansion to 155 Mt (171 million st) of production capacity by June 2013.

Meanwhile, Rio Tinto said it would trim jobs at its Argyle mine, as it seeks to cut costs in a division the mining giant plans to exit.

A pullback by Fortescue and job cuts from Rio Tinto are the latest signs that Australia’s mining industry is slowing fast and comes soon after the country’s largest miner, BHP Billiton, indefinitely delayed plans to invest an estimated $30 billion to expand its Olympic Dam copper and uranium project in South Australia. The retrenchment of Australia's giant mining companies will put pressure on an economy that has grown increasingly dependent on resource sales, which account for the majority of its exports, reported The Wall Street Journal.

The price of iron ore has dropped by one-third in the past two months. It fell as low as US$88.70 a dry metric ton last week, the lowest level since October 2009.

Fortescue lowered its fiscal year 2013 production guidance to between 82 - 84 Mt (74 - 76 million st), from a previous estimate of 86.5 Mt (78.5 million st), and reduced its expected capital expenditure to US$4.6 billion from US$6.2 billion.

In a statement, Chief Executive Nev Power also said staff numbers would be cut, although he didn't elaborate further. He said the company will reduce operating costs immediately in order to achieve savings of about US$300 million.

The company will defer development of the Kings deposit, at its Solomon Hub in the Pilbara region of Western Australia. "We have deferred our development at Kings in such a way that we have the option to resume our expansion activities at Solomon without penalty to reach 155 million tons per annum," Power said. Fortescue said it would also defer the full completion of its fourth berth at Herb Elliott Port until iron-ore prices return to "more sustainable" levels.



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