Transcription of Finance News Network Interview withFortescue Metals Group Limited (ASX:FMG) CEO Nev Power Lelde Smits: Hello, I’m Lelde Smits for Australia’s Finance News Network and joining me in Hong Kong is the CEO Fortescue Metals Group Limited
(ASX:FMG) Nev Power. Nev, welcome to the show and to Mines & Money.
Nev Power: It’s good to be here, thank you.
Lelde Smits: Fortescue cut staff, spending and you expansion plans at the end of last year as a result of the plunging price for iron ore. Has the action delivered the desired result?
Nev Power: It has Lelde. It allowed us to reduce our operating costs by accelerating a lot of reductions that would have happened over a period of 12 months or so and by deferring the Kings Project it allowed us to smooth our capital expansions going forward. I’m very happy to say that we’ve now we-commenced that project and the Kings Project will be completed by the end of this year, taking us to 155 million tonnes.
Lelde Smits: Reports have speculated Fortescue could gain up to $8 billion from the sale of a stake in your wholly owned rail and port network, The Pilbara Infrastructure. What price tag would you put on the sale and how are talks progressing?
Nev Power: We’re looking to sell around 30-40 per cent interest in the infrastructure assets and we think that would net around $3-4 billion which would allow us to accelerate the pay down of our debt. We have a lot of interested parties in that asset sale and that process is going very well. And, we would hope to bring it to conclusion in around the middle of the year.
Lelde Smits: At the time of last year’s spending cuts Fortecue cited volatile market conditions and uncertainty over the future price of iron ore. How has your outlook changed since?
Nev Power: Well there is a lot more certainty in terms of the market in China. A lot of the issues around last September were driven by a lack of certainty about the Chinese economy. I think with the new leadership in China we’ve seen a lot of new stability come into the economy there. And, we are certainly very confident about the long term demands from China.
Lelde Smits: Where do you see the price of iron ore moving this year and what price band would it need to reach in order for Fortescue to move out the red?
Nev Power: We see the price being $US120-130 for the balance of the year, but we do expect to see some volatility around that range driven by short term factors. And, at those prices, Lelde, we are well and truly in the black and making very good margins.
Lelde Smits: OK Nev. Now, looking closer at your expansion plans - Fortescue is targeting an annual production rate of 155 million tonnes per annum (mtpa) by the end of this year, as you mentioned before. But, how is the company tracking?
Nev Power: We’re on track to do that. We’ll bring on the Firetail Project in April of this year and expand up to 115 mtpa by April. And then, the final piece of our expansion, the Kings Project, will start commissioning in around October and be at full 155 mtpa by the end of December.
Lelde Smits: Turning to some joint ventures, which includeFortescue – You’ve recently inked a deal with gold producer Northern Star Resources Limited
(ASX:NST) in a deal which will see Northern Stay pay to earn a JV interest in your non iron ore rights. But, could you explain how you believe this will benefit Fortescue?
Nev Power: Well this is about bringing in another company that’s got expertise in looking for non-iron ore prospects on our vast tenements. So, we recognise that while we are specialists in iron ore there are other companies that can add great benefit to exploration and other minerals. And, we think Northern Star is an ideal partner to be exploring our tenements for those minerals.
Lelde Smits: Fortescue abandoned a potential oil & gas deal with Oil Basins Limited
(ASX:OBL) earlier this year. Are you still eyeing any potential opportunities however, that may lead to some diversification?
Nev Power: That investment was about helping us put a hedge in place for our energy usage in the Pilbara [region of Western Australia]. We run our own power stations in the Pilbara and we’re looking for options to convert a lot of that power generation to gas. So that was just one option in that process. We’re also looking at piping gas in from the coast which would allow us to convert those power stations to gas.
Lelde Smits: Finally Nev, what do you anticipate will be Fortescue’s biggest share price drivers in 2013?
Nev Power: Well, clearly the iron ore price is the number one stand out in terms of factors on share price. But, we see the long term iron ore demand as being a much more important factor to consider. The other key issue for us is achieving our expansion volumes on time and on budget and we’re well on track to do that.
Lelde Smits: Nev Power, thank you so much for joining us in Hong Kong and for the update to Fortescue Metals Group.
Nev Power: Thank you Lelde.
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