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31-05-2012 06:40:00

UPDATE: Australian Iron Ore Miner Fortescue Plans Expansion Pause

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-- Fortescue to pause expansion next year and repay debt

-- CEO says the company is targeting an investment grade rating

-- Will seek to offer investors a strong dividend yield

(Adds detail and background on Fortescue's plans throughout.)

By Robb M. Stewart

Of DOW JONES NEWSWIRES

MELBOURNE -(Dow Jones)- Australia's Fortescue Metals Group Ltd. (FMG.AU) will pause its expansion when annual iron ore production capacity grows to 155 million metric tons next year and will seek to repay debt to attract an investment grade rating, Chief Executive Neville Power said Thursday.

The more measured approach from Fortescue, which has expanded rapidly in recent years to become one of the world's largest producers of the steelmaking commodity, is a reflection of softer market conditions as well as a desire to offer investors a strong dividend yield, Mr. Power said on the sidelines of a stockbrokers conference in Melbourne.

It also comes as the share prices of mining companies around the world have been hit hard amid concerns over Greece's inclusion in the eurozone and China's appetite for metals and minerals as its economic growth cools. Fortescue's shares have dropped almost 18% since the start of the month.

"Once we achieve 155 million tons per annum, we will be generating enormously strong cashflows and we will look to pay back some of the debt we've used for this expansion phase," Mr. Power told reporters. "By end of financial year 2014 we will be in great shape."

Fortescue aims to roughly triple its production capacity in Australia's western Pilbara region by the middle of next year from 55 million tons a year currently. The company began construction of its first mine, port and railway in early 2006, and has grown rapidly to become Australia's third-biggest producer after Rio Tinto PLC (RIO) and BHP Billiton Ltd. (BHP).

The company this month said it has secured up to US$965 billion in funding through a syndicated lease facility. In March it raised US$2 billion in five- and 10-year unsecured notes.

Moody's Investors Service has assigned a B1 rating to Fortescue's notes, and has said the rating could be upgraded if its expansion plans continue to make progress on schedule. Standard & Poor's Ratings Services earlier this year raised its rating on Fortescue to BB- from B+ based on an improving financial profile.

An investment grade rating would mean lower overall borrowing costs.

"People have invested in Fortescue to take advantage of that massive step up we have gone through with that growth cycle and of course we want to reward them at the end of that by giving them a return on their investment," Mr. Power said.

He added that if market conditions are strong after the company hits its 155 million ton target, it could look to fund further expansion from other sources than just debt.

-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com

(END) Dow Jones Newswires

May 31, 2012 00:40 ET (04:40 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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