In another sign that the slump in China is hurting Australian companies, especially in resources, iron ore miner Fortescue Metals has suspended the construction of its Cloudbreak to Christmas Creek rail line in the Pilbara region of Western Australia, according to contractor, NRW.
It’s a sign that the commodities slump is having a bigger impact on WA, notwithstanding BHP Billion’s decision Tuesday to spend another $US4.8 billion expanding output there by a further 50 million tonnes a year over the next couple of years.
BHP also called off the Rio Tinto bid, so the iron ore spending should be seen as a cheaper way of expanding deeper in iron ore (which was what the Rio bid was all about).
China’s cuts in iron ore purchases is hurting, even though Fortescue tried to claim that it had struck a deal to sell more ore to China
NRW said in a statement to the ASX yesterday that
"NRW Holdings Limited advises that FMG has suspended the contract for construction of the Cloudbreak to Christmas Creek Rail Line with instructions to demobilise from site, pending determination of the project status.
"NRW had completed approximately 47% of the contract to date and is continuing operations for FMG at the Cloudbreak Mine site.
"NRW further advises that notwithstanding this contract suspension, the Company sees no reason to alter profit guidance previously issued, but will monitor developments in the lead up to the second half."
NRW shares slumped 37%, or 1.5c to 28c, Fortescue shares fell 16.1%, or 33c to $1.72. So much for the Fortescue spin.
At its AGM last week in Perth, Fortescue said:
"Fortescue has concluded a Variation Agreement to enhance an existing long term contract with one of China’s Top 5 steel mills. Commercial confidence prevents Fortescue from naming the mill.
"This variation provides for a 3.5 million tonne increase in purchases by this mill of Fortescue iron ore over the next calendar year. Beyond 2009 the customer has committed to taking 10% of Fortescue’s total production. During 2008, the customer has met its purchase obligations under the Fortescue contract.
"The contract has now been amended by the parties with the customer committing to take deliveries of up to 5.5 million tonnes per annum (‘mta’) over calendar year 2009 as Fortescue ramps up to the production rate of 55mta during that year."
That still doesn’t explain the decision to cut the railway construction. A spokesman for Fortescue was quoted in the media as saying the decision was in terms of the company’s announcement last week as well that all projects and parts of the business would be reviewed.
Media reports today suggest the Fortescue will ship less this year, possibly as low as 15 to 18 million tonnes. It will truck ore from Christmas creek to Cloudbreak in a cost saving move, hence the decision to stop building the railway.
For NRW, it was a very painful review outcome, coming ahead of yesterday’s AGM in Perth.
Shares in electrical contractor Norfolk Group slumped 25% yesterday after the company reported its earnings had been bitten by the slumping economy, especially in the building and construction sectors here and in New Zealand.
Norfolk reported a 45% in first half earnings and slashed full year guidance. The market responded by selling down the shares 10.5c, or more than 26% to a new all time low of 28.5c.
Norfolk reported net profit for the half year to September 30 of $4.287 million, down from $7.777 million in the prior corresponding half.
That was struck on an 85% rise in first half revenue to $382.806 million. The company’s earnings before interest and tax (EBIT) fell 16% to $10.299 million.
The guidance for the full year, which was updated around a month ago with a downgrade, worsened with the company now expecting to earn less in 2009 than it did in 2008.
On October 7 Norfolk said:
"The general uncertainty of global financial markets continues to impact the markets in which Norfolk operates, as discussed at the Norfolk Annual General Meeting in July this year.
“Since that time, instability in global financial markets has intensified and the New Zealand construction and building sectors have weakened further.
"As a result, Norfolk believes it will not achieve the target of a 10 per cent increase in earnings before interest and taxation (EBIT) on the 2008 financial year as previously stated.
“With no further delays in significant projects or further worsening of current market conditions, Norfolk believes it will achieve an EBIT result for the 2009 financial year similar to that of the 2008 financial year."
Yesterday that guidance became:
"Notwithstanding Norfolk’s backlog and major contract wins, the continued extreme economic unpredictability has led to the company revising its FY2009 EBIT forecast to be within a range of $27.0 million to $30.0 million," the company said.
Seeing the company had an EBIT of $34.3 million in the 2007-08 year in its first year as a listed company, the current year will see quite a slump: it could be upwards of 20%.
Despite the earnings slump, Norfolk declared a maiden interim dividend of two cents, fully franked.
The company said its first half performance had been affected by a rapid decline in economic activity in New Zealand, and one-off costs including relocation, recruitment and the establishment of new branches in India.
As at the end of October, however, Norfolk was looking forward to $730 million
