Fortescue poised to order another VLOC quartet

JULY 16, 2014 — In its latest quarterly report released today, Australia's Fortescue Metals Group Ltd (ASX: FMG) says it is in advanced negotiations with another major Chinese shipbuilder to build four more very large ore carriers (VLOCs) in addition to the 260,000 dwt quartet ordered at Yangzijiang Shipbuilding last month for a total investment value of US$275 million

The Yangzijiang newbuilds are set for deliveries from November 2016 through May 2017. The four additional VLOCs are expected to be delivered in late 2017 and early 2018 with the majority of payments also due on delivery.

Fortescue, the world's fourth largest producer of iron ore, says its shipping strategy is to lock in construction of these VLOCs which are being designed to complement the port infrastructure to improve load rates, efficiencies and reduce operating costs.

Flexibility has been built into the ownership structure of the VLOCs which will allow Fortescue to explore alternative financing structures at a later date. The investment will initially be funded by existing operating cash flows and, due to the timing of cash payments, is not expected to impact Fortescue's debt repayment strategy.

Fortescue expects the operating cost of these vessels to be well below the current forward market rates for large capesize vessels. This, together with expected throughput benefits and operational savings at the port, supports the investment in these vessels.

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