IRON ore miner Fortescue Metals is expected to quickly achieve its ambitious production ramp-up to 55 million tonnes a year, analysts say.
Fortescue (fmg.ASX:Quote,News) yesterday announced it had reached the `project completion' stage at its Cloudbreak mine in Western Australia's Pilbara region, under the terms of its $2.7 billion bond financing, allowing it to expand and develop new projects.
The news sent Fortescue's shares 89 cents, or 10.96 per cent, higher to $9.01 at 3.18pm (AEST).
Fortescue has shipped more than three million tonnes (Mt) of iron ore since commencing exports in mid-May, with 2Mt shipped in the past four weeks.
Fortescue chief financial officer Chris Catlow told AAP recently that the company aimed to export 22Mt by December 31 and 45Mt by the end of the 2008/09 financial year.
"We hope to be at the run rate of 55 Mt during the March quarter next year,'' he said.
DJ Carmichael resource analyst James Wilson said he believed Fortescue would achieve its ramp-up goals.
"I have no doubt they'll meet their target,'' Mr Wilson said.
"They are ticking all the boxes.
"It's been quite a successful mine commissioning, particularly considering it was the biggest infrastructure project in Australia.''
Mr Catlow said the company was "the process of negotiating with various banks to allow us to have operating lease facilities in place''.
Fortescue had about $600 million in the bank at the end of the March quarter.
"Under the restrictions that we have pursuant to the senior secured notes, we can take on more debt when we reach the interest coverage ratio: our earnings before interest, tax, depreciation and amortisation (EBITDA) has to be more than two and a half times the interest bill, and we probably won't be at that stage until either later this year or early next year,'' Mr Catlow said.
"Up until that point, we're able to take on additional operating leases.''
He said Fortescue had repaid a $200 million bridge-to-equity loan and expected to achieve EBITDA of $3.4 billion for the 2008/09 financial year.
"We've raised $3 billion, which is permanent capital and we've got $2.1 billion of (senior secured) notes, which are debts that get paid within five, seven and 10 years from when we raised them in August 2006.
"And the rest of the money was in pure equity.''
Mr Wilson said Fortescue would ``pay that back in no time once they get firing'' at a production rate of about 30Mt per annum.
"They've got quite a task juggling creditors, but in a couple of months we'll see funds going back into the bank.''
He said Fortescue's expansion was already factored into its share price.
http://www.news.com.au/business/story/0,27753,24052097-462,00.html
if anyone saw the eureka report the NPV stated is between $14-$18
FMG is greatly undervalued!