Fortescue halts work on Cloudbreak rail

Fortescue Metals Group has told engineering company NRW Holdings to walk off the Cloudbreak-to-Christmas Creek rail line site in the Pilbara because construction has been deferred.

Shares in the contractor, NRW Holdings Ltd, fell 16.5 cents, or 37.08 per cent, to close at 28 cents.

The deferral of the rail line construction - along with Fortescue's other expansion plans - were announced late last month amid ongoing financial market turmoil and an uncertain outlook for iron ore and steel demand.

NRW said in a statement today that it had been instructed by Fortescue to demobilise from the site.

NRW said it would not alter its profit guidance in light of the Fortescue contract suspension, but would "monitor developments in the lead up to the second half".

The contractor said it continued to work at Fortescue's Cloudbreak operation, its first mine.

The rail line will link Cloudbreak to Fortescue's planned second mine, Christmas Creek, both in WA's Pilbara region.

Work was suspended when the rail line was 47 per cent complete.

NRW said its contract would remain suspended pending a "determination of the project status".

"I would reiterate that the contract has not been terminated, merely suspended because of wider operational requirements by the client," NRW chairman Ian Burston told the company's annual general meeting in Perth today.

Mr Burston, a mining industry stalwart, was last week appointed to Fortescue's board.

He said NRW was extending its "footprint of activity to beyond an emphasis on the iron ore sector" and would explore overseas opportunities.

Fortescue previously planned to increase its production run rate from 45 million tonnes per annum (Mtpa) to 80 Mtpa in calendar 2009 but the target date was put back in October to the first half of calendar 2010.

The miner expects to hit a run rate of 55 Mtpa by the end of March 2009.

Fortescue's shares closed down 33 cents, or 16.1 per cent, to $1.72.

NRW also said today that it had begun joint venture negotiations with VDM Group Ltd and an Abu Dhabi based partner for civil construction works throughout the Middle East.

NRW's announcement is pasted below:

NRW Holdings Limited advises that FMG has suspended the contract for construction of the Cloudbreak to Christmas Creek Rail Line with instructions to demobilise from site, pending determination of the project status. NRW had completed approximately 47% of the contract to date and is continuing operations for FMG at the Cloudbreak Mine site. NRW further advises that notwithstanding this contract suspension, the Company sees no reason to alter profit guidance previously issued, but will monitor developments in the lead up to the second half.