As the iron ore price crashed below $90 a tonne this week, Twiggy Forrest’s Fortescue Metals Group is making another huge investment in its iron ore operations in Western Australia.
Fortescue announced on Monday it will spend $US275 million ($AU293.59 million) building four big iron ore ships which are due for delivery between November 2016 and May 2017.
The company has signed a contract with a Chinese shipyard with the majority of the payments expected to be made on delivery using funding from operating cash flows.
The ships will account for about six per cent of Fortescue’s shipping fleet requirements and are much bigger than traditional capesize vessels which are one of the more common boats used to ship iron ore out of Port Hedland.
Fortescue CEO Nev Power said the investment was made to reduce the company’s freight costs and maximise shipping volumes over the long term.
“We are already in the shipping business, with an annual forecast spend of around $US1.5 billion a year,” he said.
“These vessels are a natural extension of our supply chain and will play a significant role in increasing efficiencies at the Port and lowering costs.
“Owning and managing vessels especially designed to complement conditions at the port and to maximise shipped volume is expected to reduce our costs below benchmark rates.”
The market doesn’t appear to be too worried by the investment decision with Fortescue shares down 2.22 per cent to $3.97 a short time ago.
Overnight the September futures contract for 62% FE iron ore swaps fell to $88.67 a tonne.