20/02/2009 - 09:24

Brierty takes $12m hit from FMG

20/02/2009 - 09:24

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Mining services company Brierty says up to 100 jobs could be on the line after Fortescue Metals Group suddenly terminated a contract six months early.

Brierty takes $12m hit from FMG

Mining services company Brierty says up to 100 jobs could be on the line after Fortescue Metals Group suddenly terminated a contract six months early.

Brierty said in a statement today that its contract to provide overburden removal services at Cloudbreak, Fortescue's first mine in the Pilbara, was terminated late yesterday.

Brierty chief executive Stuart Crofts said he was extremely disappointed with the unexpected news but Fortescue had a legal right to terminate the contract, which was originally due to end in August.

The contract cancellation will shave about $12 million from Brierty's expected 2008/09 revenue, now forecast at $170 million.

It could also result in Brierty laying off up to 100 staff, the number of employees it had working on the contract.

Fortescue chief executive Andrew Forrest said on Friday the company "will certainly not take staff from our service providers".

Mr Crofts said Fortescue had decided it had sufficient equipment to undertake the overburden removal itself after reviewing its mine plan.

Brierty had been helping Fortescue catch up after extreme weather caused the miner to fall behind with these activities.

"We had trucks and equipment which could do their job, so we acted in the interests of Fortescue," Mr Forrest said.

A Fortescue spokesman told AAP the miner would save funds by doing the work itself.

"Brierty have done a fantastic job in assisting with overburden removal and we're now at a point where we can achieve that ourselves using our existing equipment," he said.

"They got us to a position where we can manage it from there.

"But there's no doubt we'll be combining again at some stage in the future.

Mr Crofts said he did not expect Brierty's earthworks contract at Fortescue's port facilities in Port Hedland, which was deferred for three months on November 21, would resume in the near future.

"It's now clear the expansion is not back on in the short term," he said.

Fortescue's mine, port and rail expansion plans were scaled back last year as the financial economic crisis deepened.

The miner - which has about $5 billion in debt and has only had almost one year of cashflow from mining - was at one stage planning to expand capacity to 160 million tonnes per annum (Mtpa).

It recently flagged a 120Mtpa target instead.

The spokesman said Fortescue expects to hit a run rate of 45 million tonnes by mid 2008.

"We remain intent on expanding as soon as market conditions give us the confidence that it would be prudent to do so," he said.

While the miner's half finished rail link between Cloudbreak and its second mine Christmas Creek remains on hold, the company will truck ore from the new operation, starting in April, the spokesman said.

Engineering company NRW Holdings Ltd had its contract to construct the 70-80km rail link deferred in November.

Meanwhile, China's Hunan Valin Iron & Steel Group was reported in Kerry Stokes' Shanghai Daily on Friday to have confirmed it is in discussions with Fortescue about taking a stake in the miner, but has concerns about its debt burden.

Fortescue entered a "strategic cooperative alliance" with Hunan Valin late last year but did not disclose it to Australian Securities Exchange because talks were at an early stage and were considered not material.

Fortescue's shares sank seven cents to $2.83 while Brierty's shares were down half a cent cent at 12.5 cents.

 

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