Fortescue Metals Group will spend $360 million to upgrade its Christmas Creek iron ore mine in the Pilbara to boost its total Pilbara output by 40 per cent to 55 million tonnes a year by mid 2011.
Fortescue Metals Group will spend $360 million to upgrade its Christmas Creek iron ore mine in the Pilbara to boost its total Pilbara output by 40 per cent to 55 million tonnes a year by mid 2011.
The miner, which last month said talks to secure a $6 billion funding package from China had failed, yesterday said the better than expected ramp-up of its existing operations meant it did not need to secure external funding for the staged expansion of its Cloud Break and Christmas Creek operations.
The upgrade will include a 50km rail spur to Christmas Creek which will be sufficient to support a 50mtpa operation at the site. Fortescue is currently trucking a small volume of ore from Christmas Creek to Cloud Break for processing, but will now install a dedicated modular processing plant on site that can be readily expanded as required.
Fortescue chief executive Andrew Forrest said the initial $360 million initiative, which would enable Christmas Creek to produce 16 mtpa, would be fully funded from internal cashflows but would still leave the company with cash reserves of more than $US500 million while the expansion was being undertaken.
Similarly, the company was now confident that Cloud Break and Christmas Creek would generate sufficient cash to fund further incremental expansion to 95mtpa, negating any need for the Chinese funding package, he said.
"From the strength of our cash flows, of our cash balances, we will be largely able to finance the step-up to 95 million tonnes which was the subject of the Chinese financing," Mr Forrest told reporters.
Mr Forrest declined to put a firm timeframe on the proposed expansion to 95mtpa but said once the initial upgrade of Christmas Creek had been bedded down, the full-scale expansion could notionally be completed within 12 months. But that would depend on proof that the Christmas Creek's new processing plant was performing consistently.
Mr Forrest said the true potential to fund expansion from operating cash flows only became apparent in the last couple of months as the benefits of ongoing optimisation work became apparent. Fortescue shipped a record 9.53mt from Cloud Break in the September quarter, 19 per cent more than in the prior quarter.
While Fortescue did not need external funding for its immediate expansion plans, Mr Forrest said it was possible that the company may later seek one-off project funding to develop its massive Solomon project, 140km to the west, via a dedicated rail spur to the main rail hub at Cloud Break.
The company recently announced a major new Brockman style hematite discovery at Solomon, christened Firetail, which had the potential to host 200-300mt of high grade hematite. That would complement development of the nearby Solomon channel iron deposits, already estimated to contain resources of more than 2.2 billion tonnes.
Mr Forrest said development of resources in the Solomon area could ultimately surpass the fully expanded Cloud Break/Christmas Creek operations in scale.
Fortescue's commitment to proceed with its expansion plans was welcomed by investors, who pushed the stock almost 3.5 per cent higher to $3.90. In the days immediately after the failure of its Fortescue China funding initiative, the stock dipped below $3.40.
