The relentless attack by billionaire Andrew Twiggy Forrest’s Fortescue Metals on debt and costs has paid off.
S&P has raised the credit rating on the Australian pure play iron ore miner to BB+ from BB. The outlook on the long-term rating is stable.
A short time ago, Fortescue shares were up 1.5% to $6.09. The share prices of other iron ore miners have been hit by a fall in iron ore prices overnight.
Fortescue this month announced a further debt reduction of US$1 billion, taking the total for the current financial year to $US1.7 billion, generating an interest saving of $US64 million. Net debt is now about $US4.1 billion.
“We consider the additional debt repayment has strengthened the company’s resilience to iron ore price pressure,” says S&P Global Ratings credit analyst Sam Heffernan.
The agency says the company’s credit metrics are still sensitive to iron ore prices but the additional debt repayment has provided a buffer to withstand moderate volatility.
S&P expects Fortescue to continue cutting production costs to between US$12 and US$13 per wet metric ton in 2017.
Its all-in break even costs would be about $US30 per dry metric ton at the end of the financial year.
“The company’s production costs could be the lowest among its peers,” says Heffernan.