Making the long-term play pay

IT is hard to know whether Fortescue Metals Group’s recent suggestion that it would be comfortable with a joint venture to develop the proposed Anketell Port is some form of concession or simply brinkmanship.

FMG stirred the waters recently with regard to the port by appearing to push to become the project’s proponent, usurping a consortium led by Aquila Resources, which has been driving the feasibility studies on behalf of several potential users.

FMG sources had stated the miner was concerned the Aquila plan proposed a first stage that was too small, making any future expansion more costly. Sources close to Aquila retaliated by suggesting FMG already had adequate berth allocations at Port Hedland and may well be delaying the Anketell development because it didn’t need the infrastructure yet.

With the proposed Oakajee port in the Mid West the subject of disputes between proponents and potential users, the last thing the state government would want is another infrastructure issue holding up development in the Pilbara.

Aquila has said a timetable for the development of the port still required resolution before the funding could be finalised. Another potential user, Chinese firm MCC, which owns the nearby Cape Lambert project, has been very quiet about its plans.

However, recent public statements suggest both groups appear to be coming closer to some joint venture arrangement.

 “If the right kind of structure were put up to manage things like the port it’s absolutely doable, but I think from where we are today, again everyone’s in expansion mode and looking to grow to utilise the full capacity of the port is probably more difficult in that environment than a steady state one,” FMG chief executive Nev Power told WA Business News last month.

“There’s no reason why that couldn’t be done long term; there are other jointly managed or separately managed infrastructure facilities around the world that operate very successfully, so that’s a possibility.” 

Whatever the case, Anketell is one of the more distant objectives on the FMG horizon as the company moves towards its stated target of 155 million tonnes per annum.

While current production has hit 55mtpa on an annualised basis, the company is positioning itself to make the big leap forward – including significant management changes such as the appointment of Mr Power.

The company’s September quarter report said it had $US2.1 billion in cash and, in his recent interview with WA Business News Mr Power said the company was likely to raise between $1 billion and $1.5 billion in debt by the end of the calendar year to further bolster its balance sheet.

Another more distant objective is the possibility of floating off its magnetite projects, possibly via a Hong Kong IPO.

“I do see magnetite as being developed by a separate company to FMG itself because I think we need to remain focused as a direct shipment hematite company, but we do have some very valuable magnetite assets in the portfolio, so at the same time we want to release the value of that,” Mr Power said. 

“I think they’ll get lost if we leave them inside FMG and ideally they need some different partners and probably some off-take partners and some processing partners and so on because it is quite a different processing route than what direct shipment hematite is.

“The reason that we’re looking at developing that separately, and potential listings etcetera, is really because it needs a capital base all of its own to get up and running.” 

There has also been long-term talk of FMG possibly selling or floating its rail and port assets, but Mr Power said that was not being considered at the moment.

“In terms of the infrastructure, while we’re in such a development phase as we are now, I don’t see us doing anything with that in the short term,” he said.

“We are a fully integrated supply chain, with the development of the Solomon mine coming in to round out our 155 million tonnes even more so; we are much more integrated in terms of the scheduling and integrating planning that’s required.

“It’s not to say at some point in the future it’s not possible to separate that out, but I certainly don’t see it in the short term; I think it’s all an integral part of the operations.”