Fortescue Metals Group Ltd. is continuing to offload assets as it repairs a balance sheet hurt by falling commodity prices, agreeing Monday to sell half its stake in a Western Australian iron-ore mine for 190 million Australian dollars (US$199 million).

 

Fortescue said it will sell a 25% stake in the active Nullagine iron-ore mine to joint-venture partner BC Iron Ltd. in a deal that comes three months after Australia's fourth-largest iron-ore producer by output raised US$300 million from the sale of a power plant.

 

Shares in Fortescue rose 7% Monday to outperform the broader S&P/ASX 200 Index, which rose 0.1%, even though the proceeds from selling the stake in Nullagine will do little to bring down a debt pile that analysts expect to total US$8.8 billion by the end of this year.

 

Fortescue--founded a decade ago by billionaire Andrew Forrest--has grown rapidly by placing bold bets on iron-ore deposits in Australia often overlooked by larger mining companies such as BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RIO).

 

However, its ambition to produce 155 million metric tons of iron ore for sale mainly to China was dealt a severe blow in September when the slumping price of the steelmaking commodity led it to delay new mines in Australia's Pilbara region and lay off workers. Days later it was also forced into emergency talks with lenders to agree a new US$5 billion loan facility.

 

In a statement, Fortescue Chief Executive Nev Power said the deal with BC Iron was a "fantastic outcome" and fitted its strategy to sell off non-core assets.

 

It also provides funds that could be used to restart development of the Kings mine, which is key to reaching the 155-million-tons annual output goal, he said. Without Kings, US$11.8 billion-valued Fortescue will reach peak iron-ore production of 115 million tons a year by March.

 

BC Iron will now own 75% of the Nullagine venture that currently produces more than 5 million tons of iron ore a year. Output is due to rise to an annual rate of 6 million tons in the final quarter of the fiscal year through June.

 

Perth-based BC Iron said it would fund the purchase through a mix of debt, equity and existing cash. It has secured a US$130 million, five-year debt facility with Commonwealth Bank of Australia and Australia & New Zealand Banking Group, and is also launching a share issue to raise up to A$58 million.

 

In addition to the A$190 million deal value, BC Iron has agreed to make extra payments to Fortescue if the average monthly iron-ore price rises above US$120 a ton between April 2013 and September 2014. Iron ore currently trades around US$121 a ton, although it has spent much of the past four-and-a-half months below that level.

 

"The transaction... represents a low risk opportunity for BC Iron to almost double its annual production by acquiring more of a quality asset that we already operate and know extremely well," BC Iron Managing Director Mike Young said in a statement.（Source：MarketWatch）