This article
was first published by Seeking Alpha on March 20, 2015
By Sarfaraz
A. Khan
The iron-ore
miners have been struggling due to the slump in the commodity's prices but the
industry leaders such as BHP Billion (NYSE:BHP), Rio Tinto (NYSE:RIO) and Vale
(NYSE:VALE) are in a strong position to weather the slump. However, Fortescue
Metals Group (OTCQX:FSUGY), world's fourth biggest iron-ore producer, is caught
in the downturn.
Unlike other
diversified mining companies, the Perth, Australia based Fortescue Metals Group
is a pure-play on the sea-borne iron-ore market for China. Fortescue was formed
in 2003 to tap into the growing iron-ore demand from China. The company began
hunting for the commodity in the Pilbara region of Western Australia - where
BHP Billiton and Rio Tinto have also invested billions - and discovered
high-quality deposits in the Chichester and Hamersley Range. It started
building its first mine in 2006 and made the first shipment in 2008.
In the
subsequent years, Fortescue underwent phenomenal growth, especially during
2010-14 when the company embarked on its ambitious debt -powered $9.2 billion
expansion plan to almost triple its seaborne iron ore production rate to 155
mtpa (million tonnes per annum). It was also impressive that Fortescue
completed the expansion work ahead of schedule in 2014.
When
Fortescue announced its expansion plan, the market had strong fundamentals with
healthy demand coming from Asian customers, particularly from China, as the
commodity's price climbed by more than 40% in the second half of 2010.
Meanwhile, Australian iron-ore producers had a unique advantage to tap into
this demand thanks to their proximity to … read full article at Seeking Alpha.
