22/12/2009 - 14:44

FMG pays $US20m to settle ship dispute

22/12/2009 - 14:44

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Iron ore miner Fortescue Metals Group has nearly resolved the year-long dispute with its shipping charter contractors afte agreeing to pay more than $US20 million to one of the counterparties involved.

Iron ore miner Fortescue Metals Group has nearly resolved the year-long dispute with its shipping charter contractors after agreeing to pay more than $US20 million to one of the counterparties involved.

In early December 2008, Fortescue unexpectedly severed its long-term shipping contracts citing "changed market conditions" and "continued prudent business management" which immediately lead to legal action being taken against the Perth-based miner.

Fortescue announced today that it had reached a settlement agreement for its shipping dispute with SK Shipping Europe Plc pursuant to two suspended ship charter contracts.

Fortescue agreed to pay $US20.34 million ($32.2 million) to SK Shipping, equating to $US10.17m for each of the two disputed vessels.

Upon payment, the legal action initiated by SK Shipping will be withdrawn.

Additionally, Fortescue restructured its future cargo obligations with SK Shipping, whereby two new time charter vessels have been agreed with respective terms of 4 and 8 years, and an undisclosed freight rate under the restructured charter arrangements has been set at a base daily rate plus a hire incentive payment and includes a profit share arrangement.

The company said it has now successfully completed settlements with four counterparties and only has two remaining vessels to finalise.

In a stock exchange announcement this morning Fortescue said it will remain committed to the guidance given in February that the potential damages bill from its decision to cut the contracts was $US171 million.

 

Full announcement below:

 

Fortescue Shipping Contracts
Fortescue Metals Group ("ASX:FMG" "Fortescue") is pleased to announce it has reached a settlement agreement for its shipping dispute with SK Shipping Europe Plc ("SK Shipping") pursuant to two suspended ship charter contracts.

Under the settlement terms, SK will discontinue its legal proceedings against Fortescue.

Fortescue has now successfully completed settlements with four counterparties and now only has two remaining vessels to finalise. Following extensive negotiations with SK Shipping, Fortescue can advise the key terms of the settlement are as follows;

- Fortescue is to pay SK Shipping an upfront settlement sum that equates to US$10.17m for each of the two disputed vessels. Upon payment, the legal action initiated by SK Shipping will be withdrawn.
- Fortescue has restructured its future cargo obligations with SK Shipping whereby two new time charter vessels have been agreed with respective terms of 4 and 8 years.
- The freight rate under the restructured charter arrangements has been set at a base daily rate plus a hire incentive payment and includes a profit share arrangement.

As an update to the guidance provided on 24 February 2009 regarding Fortescue's potential damages estimate of US$171 million, the quantum of the damages paid to SK Shipping together with amounts paid under the previous 2 settlements with Classic Maritime and Angelicoussis Shipping Group, are consistent with the advised estimate.

The extent of any further liability pursuant to the two unresolved disputes should fall within the originally assessed exposure estimate.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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