FMG considers $100m machinery sale

Peter KlingerThe West Australian

Fortescue Metals Group is considering the sale of tens of millions of dollars worth of mining equipment which has become surplus to requirements because of the company's ability to slash the strip ratios at its Pilbara mines.

In addition to having to move much less overburden than budgeted to access the ore at the Chichester hub because of improved mine planning, well-placed industry sources say Fortescue has also benefited from higher-than-anticipated iron grades at the new Solomon operation.

Combined, the two breakthroughs have sparked a huge drop in the overall volume of material movements across Fortescue's mines, enabling the company to idle or leave aside brand-new dump trucks, loaders and drill and blast equipment.

Fortescue refused to comment.

But sources say the amount of surplus equipment could easily be worth more than $100 million.

If sold, it could provide another handy cash boost for Fortescue as the company tries to lighten its debt load by disposing of non-core and non-strategic assets.

The company had $US5.6 billion of property, plant and equipment on its books at December 31. At least $US2.8 billion was attributable to developed assets.

Fortescue is expected to address the issue next week when it reports its full-year results.

Fortescue revealed the breakthrough in slashing strip ratios at the Chichester hub in its June quarterly late last month, though it failed to register with investors, who were more focused on a sale of a stake in The Pilbara Infrastructure subsidiary.

Fortescue said a record June-quarter output of 25 million tonnes of iron ore shipped, up 24 per cent on the prior quarter and 40 per cent higher than the previous corresponding period, was the result of declining strip ratios and the impact of operational efficiencies.

Cash costs dropped 17 per cent to $US36.01 a tonne during the quarter, at a time when the delivered iron ore price averaged $US125/t, higher than many market forecasts.

"The Chichester strip ratio of 3.5x in the June quarter reflects Fortescue's new processing capability and the associated revised five-year mine plan," Fortescue said in the quarterly.

"Work is continuing on a revision to the life-of-mine plan at the Chichester and Solomon hubs, which are expected to deliver strip ratios of 3.5x and 1.4x respectively, consistent with current results."

In 2011-12, Fortescue moved 4.3 times more overburden than ore.

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