Heavily indebted iron ore miner Fortescue Metals Group has deferred $1.6 billion of spending on its expansion projects and cut “several hundred” jobs in a dramatic reaction to the sharp plunge in iron ore prices.
Fortescue said staff numbers and operating costs would be cut to immediately save $300 million, “to secure the profitability and liquidity of the company”.
It will also defer development of the Kings deposit within its Solomon mining hub, and the full completion of a fourth berth at Port Hedland “until iron ore prices return to more sustainable levels”.
As a result, the company's capital expenditure forecast for 2012-13 has been cut by $US1.6 billion to $US4.6 billion.
Fortescue said it still planned to complete the expansion of its Christmas Creek mine and commission the low-cost Firetail deposit at Solomon, to achieve a production capacity of 115 million tonnes by the end of March next year.
The company had been planning to reach capacity of 155mt pa but that has been deferred until market conditions improve.
“These measures reflect the company's ability to reduce and delay cash expenditures to meet market conditions and provide us with head room in the event of further deterioration of iron ore prices," chief executive Nev Power said in a statement.
"We are confident that the underlying fundamentals of the Chinese economy are strong and we believe iron ore prices will rebound in the medium term.
"However, we have moved quickly to strengthen the balance sheet."
Slowing demand from China has been the main cause of a drop in iron ore prices, with spot prices down by 50 per cent from the record levels of about $US180 a tonne in the first half of calendar 2011.
Contractors working on Solomon and other iron ore projects have been hit hard over the past few months.
NRW Holdings called a trading halt today after its shares lost 19 cents to $2.23, down from $4.25 in April.
Calibre Group, RCR Tomlinson and Forge Group all said they did not expect any material impact from the deferral of capital spending.
RCR has a $600 million project at Solomon but CEO Paul Dalgleish said there would simply be some timing changes to its work, with a deferral of spending into the 2013 calendar year.
Similarly Forge has two large engineering and construction contracts at Solomon, worth $325 million, but said today's announcement would not have a material impact.
Mr Power said Fortescue would adjust its mining operations to save cash and improve margins.
This includes reduced spending at its Cloudbreak mine until the low-cost Firetail mine starts production next year.
He added that the company was in advanced negotiations to sell its Solomon power station and in discussions with two preferred investors over the partial sale of its North Star magnetite project.