Fortescue Metals Group Ltd. (FMG), the biggest mining issuer of junk bonds, is in advanced talks to secure additional funding of as much as $1 billion after expansion costs rose.
Fortescue, Australia’s third-biggest iron-ore shipper, today reported a cost overrun of 7.1 percent to $9 billion for an expansion to nearly triple output capacity at the Perth-based company’s mines in West Australia’s Pilbara region. Fortescue will also seek more funds to boost liquidity.
“We may go up to $1 billion just to make sure we have that liquidity fully covered,” Stephen Pearce, Fortescue’s chief financial officer, told reporters on a conference call. “We have a number of options in front of us. We are fairly well advanced in those discussions.”
Fortescue, with total debt of $8.9 billion, will probably choose a short-term funding option rather than sell more bonds, Pearce said. The company said it’s not considering an equity raising or taking on partners to help raise funds.
Fortescue fell 2.2 percent to A$4.54 at the close in Sydney, while the S&P/ASX 200 Index gained 0.9 percent.
Mining companies in Australia are struggling with escalating costs as a record project pipeline in the world’s biggest iron ore, coal and alumina exporter drives labor shortages and equipment wait times.
Fortescue, controlled by billionaire founder Andrew Forrest, has more junk-rated bonds outstanding than any other mining company, according to data compiled by Bloomberg on debt graded by Standard & Poor’s, Moody’s Investors Service or Fitch Ratings.
Junk, or high-yield bonds, are rated below Baa3 at Moody’s and BBB- at S&P and Fitch.
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