Fortescue Metals is selling is 40 per cent stake in its rail and port infrastructure business in a bid to raise up to $4 billion. Reports said the company is negotiating with several potential buyers to cut Fortescue's debt burden which has reached $12 billion.
The increase in Fortescue's debt burden is mainly due to a large cut in the price of iron ore in the global market to $90 a tonne from $140, although the price has recently recovered to $140.
Analysts estimate the value of the rail and port business, held by Fortescue as a separate subsidiary called The Pilbara Infrastructure, between $4 billion to $6 billion. The infrastructure, which is a prized possession for Fortescue, is an asset for the company in hastening the swifter delivery of products to the market and has been the envy of junior miners that suffered from lack of transport options.
Fortescue declined to name the interested buyers, but speculations point to rival Pilbara miners as among them, as well as American railway operator Genesee & Wyoming which has eyed Pilbara as a place for growth, and the transport company formerly known as QR National Aurizon.
The sale would follow recent Fortescue divestments after the miner sold a power station and a stake in a joint venture with BC Iron. The money to be raised from the sale of the port and rail business would be used also to restart the Kings expansion project stopped in September because of a debt crisis.
Under Fortescue's aggressive growth forecast, the company plans to hike iron ore production to 155 million tonnes a year from the current 55 million.
With the sale of the infrastructure assets, Fortescue is looking to enter into a long-term contract with the buyer of the 40 per cent stake in the port and rail business.