Fortescue Metals Group Plans to Triple Iron-Ore Production with $8.4 Billion Expansion

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Researched by Industrial Info Resources (Sugar Land, Texas)--The board of Fortescue Metals Group (ASX:FMG) (Perth, Australia) has announced approval for an ambitious $8.4 billion expansion plan to triple iron-ore production from the 42 million tons achieved last year to 155 million tons per year.

In a statement issued by the company last week, Fortescue announced "the approval sets the platform for a major $8.4 billion works and procurement expansion program to commence at Fortescue's Chichester and Solomon Hubs."

The company operates a tenement of more than 71,400 square kilometers in the Pilbara region of Western Australia. Operations at the first of Fortescue's mines, the Cloudbreak mine, commenced in 2008. A second mine has since been established at Christmas Creek, and together the two mines make up the Chichester Hub.

Two operations, Firetail and Kings, make up the planned greenfield Solomon Hub, for which several approvals and consents are still outstanding. However, these are expected to be finalized by early next year.

The company currently has an installed capacity of 55 million tons per year through two berths and a single in-load, out-load system at the Port Hedland complex, but the Port Hedland Port Authority (PHPA) has authorized Fortescue to ship up to 120 million tons per year from the port.

The expansion plans were approved by the Fortescue board, following assessments of the detailed plans for the Chichester Hub expansion and the feasibility study for the first phase of the Solomon Hub project.

Of the $8.4 billion investment, some $4.6 billion will be aimed at port and rail expansions, including the construction of two additional berths and in-load and out-load systems at Port Hedland, already approved by the PHPA. Fortescue also has requested approval for the construction of a fifth berth at the port complex. Preliminary work at Port Hedland is under way and is scheduled for completion by the end of 2012.

About $1.5 billion has been allocated to the Chichester Hub expansion, which includes the construction of a second ore-processing facility beside the existing facility at Christmas Creek, while a new primary crushing hub will be constructed to the east of the current ore-processing facilities. An overland conveyor system will connect the two facilities. Work is expected to begin in March next year, with a scheduled completion also by the end of 2012.

Although development approvals and consents were still outstanding, $2.3 billion has been earmarked for the Solomon Hub Phase I project. Work will include the development of an ore-processing facility at the Firetail mine as the first phase, with a second such facility planned for the Kings mine as Phase II.

Construction of the Firetail ore-processing facility is expected to begin in mid-2011, with direct shipments of ore forecast by the third quarter of 2012 and the first ore from the ore processing facility will be exported from 2013.

At the same time, the Australian Securities and Investment Commission (ASIC) (Canberra, Australia) has launched an appeal in the Australian Federal Court against a decision made in favor of Fortescue in December last year. In the concerned case, ASIC leveled complaints of dishonesty against Fortescue over a statement made by Fortescue at the end of 2004 and early 2005 that it had signed "binding" agreements with Chinese companies to finance and build rail, port and mine works in Western Australia worth $1.82 billion.

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