Fortescue Metals group has announced it will defer the development of the Kings deposit within the Solomon mining hub and the full completion of its fourth berth at Herb Elliott Port until iron ore prices return to more sustainable levels.

 

It has also to announced the sale of the 125 megawatt dual-fuel power station at its Solomon iron ore mine in the Pilbara region of Western Australia to a wholly-owned subsidiary of TransAlta Corporation for US$300 million, and signed a contract to purchase the power station's entire output over the life of the Solomon Mine.

 

In a statement to the ASX, Fortescue said the action was necessary  "to secure the profitability and liquidity of the company in response to
volatile market conditions and uncertainty over future iron ore prices." It projected the deferment of projects would result in a slight reduction to the previous FY13 production guidance of 86.5Mt equity tonnes to a new range of 82Mt – 84Mt.

 

Fortescue CEO Nev Power said staff numbers and operating costs would be reduced immediately to save approximately $300 million.

 

“The focus in the short term will be on reducing operating expenditure at the Cloudbreak mine until the low-strip ratio Firetail operations, with costs in the lowest quartile of the global cost curve, come online in the March quarter 2013,” he said.

 

Mr Power said Fortescue intends to complete the development of its Solomon project when market conditions recover.

 

“We have deferred our development at Kings in such a way that we have the option to resume our expansion activities at Solomon without penalty to reach 155mtpa,” he said.

 

The statement confirmed that the company would complete the expansion of its Christmas Creek mine, commission the low-cost Firetail deposit at Solomon mine and deliver port and rail projects to deliver a near term growth target of 115mtpa. The completion of Christmas Creek stage two ore processing facility will see first ore produced from the next expansion phase within four weeks.

 

Mr Power said that Fortescue was also in discussions with two preferred major investors over the partial sale of the North Star magnetite project.

 

The company's statements were followed by the resignation of joint company secretary and investor relations head Rod Campbell.