The market couldn’t make up its mind again yesterday whether Fortescue Metals abandonment of its Chinese loan option was a good or bad thing.
The shares traded in a narrow range and closed steady at $3.90 as investment analysts debated whether it was good for the stock, bad, or indifferent.
The company’s statement in late September said the loan deadline of the end of that month had passed without a satisfactory deal, was followed by hints in the quarterly production report on Monday, that the China loan deal was dead.
Now the line is the company expects to fund a $US2 billion expansion of its iron ore capacity through internal cashflows, rather than a loan.
Unexplained is the difference between that estimate the $US5 billion to $US6.5 billion loan size mentioned in the original statement in August, when FMG also revealed a temporary pricing deal with the Chinese steel mills.
Fortescue wants to more than double its output from its Chichester project in WA from its present annualised rate of 38 million tonnes to 95 million tonnes.
Royal Bank of Scotland analysts said yesterday that "the inability to reach an acceptable financing arrangement with the Chinese raises some doubt about the timing of expansion options".
Goldman Sachs JBWere analysts said that Fortescue could internally fund expansion to that level by 2014 and not 2012..
Patersons Securities says the expansion to 95 million tonnes would now ”probably be slower than initially forecast”.
Credit Suisse analysts have previously described as ”simply inconceivable” suggestions that Fortescue would be able to expand its production to 95 million tonnes solely using operating cash flows.
Mr Forrest indicated to the media that Fortescue might also use sale-and-leaseback arrangements and ”other sources of capital” to help fund the expansion on top of internal cashflows.
Yesterday Fortescue approved a $360 million project to increase its annual production capacity to 55 million tonnes by December next year.
FMG says the planned expansion of Christmas Creek will add to output from its Cloudbreak operation and boost capacity to 55 million tonnes a year by 2011 from about 38 millions tonnes now.
Fortescue is still to attain its initial annual production target of 45 million tonnes.
It says it will take just over a year to boost output to 55 million tonnes and plans to start work next month.
The company will be hit by the wet season, which has affected shipments in the last few years, especially cyclones.
In its quarterly report Fortescue said its September quarter production exceeded guidance by 9% and reiterated its forecasts for the current quarter.
The iron ore miner said it shipped 9.53 million tonnes in the three months to September 30, up from 7.98 million in the June quarter.
On an annualised basis production was 38 million tonnes a year compared to the 35 million tonnes a year forecast.
Fortescue said it had $US704 million in cash at the end of the quarter, compared to $US654 million at June 30.
"As per previous guidance, the December quarter forecast for shipping is for a continuation of the 35Mtpa run rate," it said in its quarterly report.
"While the September quarter showed a significant increase over this level, it should be noted that the September quarter was unaffected by adverse weather which is more likely to be experienced in the December quarter as the wet season approaches."
