Fortescue on track for 155Mt

Iron ore miner completes US$2.4 billion port expansion

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 15, 2013 11:56 am AEST

Fortescue Metals Group (ASX:FMG), Australia's third largest iron ore exporter, is on track to lift its export capacity to 155 Million tonnes per year, with the final completion of a fourth berth at Herb Elliot Port, at Port Hedland.

The expansion, at a cost of US$2.4 billion, represents the last major component need to triple production capacity across its mine, port and rail operations by the end of this year. The company is now just months away from completing the final leg of a US$9 billion expansion, with the construction of the 40 million tonnes per annum Kings mine at Solomon.

Construction included two new berths, two shiploaders, two train unloaders as well as 15.5 kilometres of conveyor systems, transfer stations and associated infrastructure. Fortescue says it has also received approval to construct a fifth berth at Herb Elliot Port, which is expected to begin later this year.

Fellow Pilbara iron ore miner, Rio Tinto (ASX:RIO) has yet to give the go-ahead to increase its production to 360 million tonnes, around 80 million tonnes more than it currently produces each year. BHP Billiton (ASX:BHP) produced 170 million tonnes of iron ore in the 2012 financial year, and is also ramping up its production. In the most recent quarter, its Western Australian Iron Ore division increased shipments to an annualised rate of 217 million tonnes, but has forecast production at 207 million tonnes in the 2014 financial year.

The news from Fortescue comes as the iron ore price hits A$150 a tonne, giving all three major iron ore miners a significant boost. BHP and Rio boast production costs of around US$40-$50 a tonne, giving them a handy margin, while Fortescue's production costs are expected to be significantly lower once the Kings mine goes into operation.

Foolish takeaway

With expansion going so well for Fortescue, the company should be able to meet its debt repayments on schedule and could even pay it off early, if iron ore prices hold around this level over the short-to medium term.

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Motley Fool writer/analyst Mike King owns shares in BHP.

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