The shares of iron ore mining giant Fortescue Metals Group Limited (ASX: FMG) have edged higher this morning following the announcement of yet another debt repayment. In early trade its shares are up over 3% to $6.48.
The low cost seaborne supplier of iron ore issued a US$1 billion repayment notice for its 2019 Senior Secured Credit Facility.
According to the release the repayment will be made at par on December 23 2016 resulting in annual interest savings of approximately US$38 million.
Fortescue's CEO Nev Power had this to say on the repayment:
"This US$1.0 billion payment is a continuation of our focussed debt repayment strategy and further lowers our total cost position. Fortescue's nearest debt maturity is in June 2019 and is now less than US$2.0 billion with gross gearing falling below our targeted 40 per cent level once this payment is made."
I've been impressed with Fortescue's turnaround and believe management should be commended for the way it has seized on high iron prices to repay its debt.
This along with more efficient mining practices helped take C1 cash costs to just US$13.55 a tonne in the most recent quarter, making it officially the lowest cost seaborne supplier of iron ore into China.
But despite this I can't justify an investment in Fortescue or its peers Rio Tinto Limited (ASX: RIO) and Atlas Iron Limited (ASX: AGO) at this point in time.
I expect in 2017 there will be a correction in iron ore prices as new supply hits the market, pushing prices as low as between US$50 a tonne and US$60 a tonne. Although Fortescue will clearly still be very profitable at these prices, I fear that higher future iron ore prices are unlikely in the future.
This is likely to result in the share price of Fortescue and fellow iron ore miners taking a tumble. At that point I might become interested in an investment.
