BILLIONAIRE Andrew Forrest’s iron ore empire – branded the ”Fortescue family” for its collective approach to success – has endured what insiders are calling the most horrific week in the company’s history.
But Fortescue has paid a price for its survival, shedding as many as 1000 ”family members”, including long-standing senior executives hired by Forrest himself, in an aggressive move to wipe $300 million from the company’s operating costs.
As part of its dramatic overhaul the iron ore miner – considered the most aggressive in the market – pulled back on $1.6 billion of expansion plans in the Pilbara as Chinese demand for the steel-making commodity languished driving down the benchmark iron ore price.
Despite Fortescue’s change of pace, ratings agencies continued to move against the company. Fitch Ratings downgraded its outlook from stable to negative on Wednesday due to the increasing pressure on its liquidity and debt.
”The peak debt requirements of the company’s large debt-funded capacity expansion is coinciding with a rapid and continuing decline in iron ore prices,” the agency said.
Fitch believed Fortescue’s deferral of plans to triple production to 155 million tonnes of ore a year would alleviate some of the pressure, but its debt covenants still required iron ore prices to recover above $US110 per tonne – something the market has yet to see.
Fortescue’s external affairs chief, Julian Tapp, and joint company secretary and investor relations head, Rod Campbell, as well as stalwarts Andrew Barclay and Ann Marie Lowry from the company’s legal team, all lost their jobs during the week.
”I am in shock!!! What is happening to FMG?! Can not believe it, so sad! First Eamon leaving and then getting rid of Julian and Rod??? … it doesn’t make sense,” a former FMG geologist wrote on Facebook.
One sacked IT worker reported staff email accounts and phones were being disabled as they were escorted from Fortescue’s Perth headquarters. ”Good Fortescue Values,” he posted on the social networking site.
In an email to staff on Tuesday Fortescue outlined further measures to cut costs for ”at least three to six months”, which included cutting all non-essential travel, all internal catering and encouraging employees to take leave without pay.
Four days before the dramatic turn of events Mr Forrest told Perth reporters Fortescue had $5.6 billion in the bank and was ready to ”weather any storm”.
But as he spoke short sellers were moving aggressively on the company he had built into the fourth-largest iron ore producer in the world.
Shares being shorted spiked almost 50 per cent in less than a month.
Fortescue’s share price closed at $2.97 on Thursday, marking a three-year low for the miner after three days of falls shedding about 60¢.
Unlike the major miners Rio Tinto and BHP Billiton, which can still turn a profit on a significantly depreciated iron ore price, Fortescue’s cash costs were believed to be as high as $US50 per tonne at its Cloudbreak operation.
And unlike junior competitors like Atlas Iron, which did not have extensive borrowings, Fortescue, in its rush to become the next force in iron ore, borrowed heavily to fund its $9 billion expansion plans in the Pilbara.
Fortescue was geared in such a way that it could not balance its books with an iron ore price under $US106 a tonne.
But Forrest was joined by a large chorus of industry leaders and analysts who, as recently as two weeks ago, still believed the iron ore price fall was an aberration that would almost immediately correct itself.
The iron ore price has slowed its descent, said CLSA analyst Hayden Bairstow, even enjoying a slight 20¢ rise Thursday night to below $US88.
Yesterday, as staff and contractors were gathered at the outback Cloudbreak
site to learn who next would be losing their jobs, Fortescue was looking healthier, having recovered 36¢ to $3.33.
This story Administrator ready to work first appeared on Nanjing Night Net.