Fortescue Buys Time With New Debt Facility

Fortescue Metals Group Ltd. (FMG.AU) has bought itself more time to ride out slumping iron-ore prices, securing up to US$4.5 billion in debt to refinance its existing loans and free it from any immediate need for a fire sale of assets to raise funds.

The Australian mining company, the world’s fourth-biggest producer of the steelmaking commodity, said Tuesday that a fully underwritten credit facility has pushed out its first debt repayment until November 2015 and comes without banking covenants–limits set out in a loan contract that set out operational restrictions on the borrower, often relating to gearing ratios and working capital. Earlier covenants had come under pressure with the sharp fall in ore prices over the last couple months, sparking fears among investors of a possible breach.

“We have acted decisively and comprehensively, responding to market conditions,” Chief Executive Neville Power said during a media conference call, adding that the new facility would mean Fortescue could refinance all its existing bank facilities and also boost its liquidity. “It is a sledgehammer to crush an ant.”

Concerns over Fortescue’s debt burden have heightened as prices for iron ore and other industrial commodities fell amid waning demand from key consumer China and the debt crisis in Europe. Fortescue’s share price dropped 14% last Thursday before the company, which has already pledged to slash costs and cut its spending plans, released an announcement to say it was discussing with its banks waivers for its debt covenants.

Released from a trading halt imposed Friday, the company’s shares rallied Tuesday. By 0305 GMT, the shares were trading 18% higher at A$3.52.

Ian Preston, an analyst at Goldman Sachs, said the new debt arrangement should secure Fortescue’s expansion in the face of commodity price volatility. “If the iron-ore price stabilizes around current levels, it should remove the need for the company to raise additional capital by way of either additional debt or equity or asset sales,” he said in a research report.

Credit Suisse and JP Morgan have underwritten the senior secured credit facility, which has been secured against Fortescue’s assets. Stephen Pearce, chief financial officer of the Perth-based mining company, declined to disclose the fees for the facility but said the overall cost will be under the roughly 7% that Fortescue’s unsecured bonds trade at.

Mr. Power said the company is evaluating approaches from unnamed parties interested in buying some of Fortescue’s assets or partnering with it, but no deals are required under the terms of the debt facility and would only be agreed upon if they were deemed to add shareholder value.

Fortescue has been one of the most prominent faces of Australia’s mining boom over the last decade.

Formed in 2003 by mining entrepreneur and billionaire Andrew “Twiggy” Forrest, the company leveraged China’s soaring demand and took on high levels of debt to quickly build mines and a rail-and-port network that challenged established rivals Rio Tinto PLC (RIO) and BHP Billiton Ltd. (BHP), which tightly control their own infrastructure.

As iron-ore prices rose, the company set its sights on tripling its production capacity of about 55 million tons a year by the middle of next year on the expectation that higher volumes would drive down operating costs and allow it to swiftly repay debt from its cash flow. But then as China this year acted to cool its property market, demand for steel cooled and mills began working through stockpiles of iron ore, with the spot market price falling sharply over the past two months.

Iron ore sank below $90 a ton late last month, to its lowest level since October 2009, although it has recovered slightly in recent days to regain the US$100-a-ton level.

Mr. Power expressed confidence that prices will continue to rally, back toward about US$120 a ton. Every $10/ton rise in the price stands to add about US$1.2 billion to Fortescue’s cash flow when its capacity reaches 115 million tons a year, the new near-term target the company is aiming for, he said.

Fortescue early this month said it was scaling back its expansion investment by US$1.6 billion for the year through June to US$4.6 billion, and is cutting staff and operating costs to save about US$300 million. The development of its Kings deposit was delayed in the move, although Mr. Power said Tuesday that the company hoped to decide by December to resume the Kings project, which would keep development costs from increasing.

The company this month sold a power station that supplies electricity to one of its mines in Western Australia state for US$300 million, and Mr. Power said the sale of certain other assets is being considered. The company could also bring in partners on its operations or to invest in assets including its infrastructure, but there is no immediate need for an equity raising, he said.

Write to Robb M. Stewart at robb.stewart@wsj.com

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Copyright © 2012 Dow Jones Newswires

Bangkok Bank Seeks to Price 2-Tranche Benchmark-Sized Dollar Bond as Early as Today

Bangkok Bank PCL (BBL.TH) is planning to sell a two-tranche benchmark-sized U.S. dollar bond as early as today, according to a term sheet seen by Dow Jones Newswires Tuesday.

The Thai bank is seeking to price a 5.5-year tranche to yield around 235 basis points over comparable Treasurys, and a 10-year tranche to yield around 237.5 basis points over Treasurys.

Morgan Stanley is sole bookrunner on the fixed-rate, senior unsecured Reg S/Rule 144A offering, which is provisionally rated A3 by Moody’s Investors Service and BBB-plus by Fitch Ratings and Standard Poor’s Ratings Services.

Reg S status means the bond doesn’t need to be registered with the Securities Exchange Commission, but Rule 144A enables it to be sold to qualified institutional buyers in the U.S.

Write to Natasha Brereton-Fukui at natasha.brereton-fukui@dowjones.com

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Copyright © 2012 Dow Jones Newswires

China’s Slowdown Shows Signs of Bottoming -Rio Tinto

China’s cooling economy should begin to heat up heading into year-end as Beijing drives forward new infrastructure investments that will fuel commodity demand in the world’s second-largest economy, Rio Tinto PLC’s (RIO) Australian managing director said Tuesday.

“There are some signs the slowdown may be reaching its bottom,” said the executive, David Peever, at a conference in Canberra.

China’s economic growth, which has slipped to its slowest rate since 2009, has been a key cause for concern for Australia, a country heavily dependent on resources exports, much of which is shipped to China.

China’s official manufacturing purchasing managers index stood at a nine-month low in August, with the reading slipping below 50–which reflects a contraction in activity–for the first time since November last year.

Beijing has recently speeded up approvals for infrastructure projects, however.

“This points to a renewed buoyancy towards the end of this year,” or the first quarter of 2013, Mr. Peever said.

But he said the U.S. economy was “still troubling,” and that he expected the euro-zone’s debt crisis to continue to weigh on global growth for some time.

“We don’t know what’s to become of Europe,” Mr. Peever said. “That presents a clear danger to the rest of the world.”

Rio Tinto, the world’s second-largest iron-ore producer by output after Brazil’s Vale SA (VALE), has been among a raft of mining companies reassessing operations as demand from commodity-hungry Asian nation has softened.

BHP Billiton Ltd. (BHP) and Fortescue Metals Group Ltd. (FMG.AU) are planning to cut back spending amid caution over the economic outlook for Asia, weak commodity markets and rising production costs.

Mr. Peever said the competitiveness of Australia’s mining sector globally was falling as capital and production costs rise, and as a consequence of higher taxes. He said policymakers and industry needed to “take decisive action” to shore up the investment pipeline.

“Investment decisions are increasingly hard to make,” he said.

The Anglo-Australian company recently said it would close its Blair Athol coal mine in Queensland state this year, rather than seeking to extend the life of the operation.

Rio Tinto is also planning to trim jobs at its Argyle diamond mine, while its majority-owned aluminum-smelting operation in New Zealand, New Zealand Aluminium Smelters, is accelerating cost-cutting and expects to cut about 100 jobs by the end of November.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

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Copyright © 2012 Dow Jones Newswires

BHP Billiton Freezes Base Salary for CEO, Top Management

Resources giant BHP Billiton Ltd. (BHP) has frozen the base salaries of Chief Executive Marius Kloppers and close to 120 other senior figures in a show of restraint as it reacts to tougher market conditions with sweeping cost-cutting measures.

Mr. Kloppers total take-home pay package in the last fiscal year shrank by 40%, despite a 4% rise in his base salary, after he and the head of BHP’s petroleum division declined bonuses following a hefty impairment charge against the value of recently acquired U.S. shale gas assets.

As prices for industrial commodities such as coal and iron ore have slumped sharply in recent months, companies have been forced to postponing expansion projects, rein in spending and close some operations. BHP in recent weeks has said it would halt output at a second loss-making coking coal mine in eastern Australia, shelve or delay more than US$50 billion in investment, cut employee and contractor numbers and move to sell certain non-core assets. Rio Tinto PLC, Xstrata PLC and a raft of other companies have also taken steps to cut costs.

BHP in its annual report, published Tuesday, said the base salaries of its senior management have been frozen for the current year through June “in recognition of the prevailing business climate.” The step was also taken following benchmark tests that looked at the pay of executives at other big energy and mining companies.

The company also won’t adjust the remuneration for its non-executive directors, it said.

For Mr. Kloppers, that means his base pay will stay at US$2.21 million this fiscal year. His total package last year was US$6.63 million, down from US$11.06 million the year before, which included a US$4.7 million performance-based short-term incentive award.

The CEO and Michael Yeager, chief executive of the petroleum division, decided last month to forgo any short-term bonus for the last fiscal year after BHP booked a US$2.84 billion impairment charge against the value of the Fayetteville shale gas assets bought just last year following a sharp fall in the price of the fuel.

The Melbourne-based company’s net profit fell 35% to US$15.42 billion for the year to June 30 from a record US$23.65 billion last year, largely due to a slump in prices for many of the commodities it produces and a rise in operating costs.

Chairman Jacques Nasser in the annual report said the past year was characterized by high levels of volatility and uncertainty.

“The debt issues of the eurozone remain a global concern,” he said. “While there are some signs of improvement in the United States economy, a recovery will only continue provided there are no large external shocks. Furthermore, China and other emerging economies have also seen subdued growth as they face cyclical and structural pressures.”

Still, the company said it remained confident in the long-term demand for its products and was committed to continued investment in high-returning growth opportunities. It has plans to spend close to US$22 billion this fiscal year on its operations, up from about US$20 billion in the last year.

Mr. Kloppers said that measures had been taken to substantially reduce operational costs and nonessential expenditure across BHP’s business. Fiscal 2013 “will see the benefits of these significant cost reduction measures, along with substantial volume growth, flow through to our financial results,” he said.

Write to Robb M. Stewart at robb.stewart@wsj.com

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Copyright © 2012 Dow Jones Newswires

Robert Latimer gets OK to travel to U.K. for panel talk

Robert Latimer will be allowed to go the United Kingdom to take part in a panel debate on end-of-life issues.

Latimer, who was convicted of second-degree murder in the 1993 death of his severely disabled daughter, Tracy, has been granted permission by the National Parole Board to attend the Oct. 18 discussion, which is being organized by the University of Oxford.

The 59-year-old Saskatchewan farmer’s case continues to generate debate across Canada about euthanasia and the rights of people with disabilities.

Latimer has always contended that he acted out of compassion when he killed his 12-year-old daughter on his family’s farm in the Wilkie, Sask., area on Oct. 24, 1993.

Tracy died of carbon monoxide poisoning after her father put her in a truck that had a hose leading from the exhaust into the cab.

Latimer has contended that Tracy was in severe pain because of complications from cerebral palsy.

After an initial trial that was halted due to jury interference, he was convicted of second-degree murder at the end of his second trial, and in 1998 was sentenced to life with no opportunity for full parole for 10 years. Latimer appealed that sentence, but it was upheld by the Supreme Court in 2001.

Latimer was first granted day parole in March 2008 and full parole in November 2010, but the life sentence means he must be under some form of supervision by the justice system for the rest of his life.

He currently lives in Victoria, but often travels back to a farm in Saskatchewan to be with his family.

With files from The Canadian Press

Blue Jays to address how gay slur got on Escobar’s eye-black

The Toronto Blue Jays say they’re looking into reports that shortstop Yunel Escobar played Saturday’s game against Boston with a homophobic slur written in Spanish under his eyes.

Several pictures posted online show Escobar with the message written in his eye-black, a type of sticker players wear under their eyes to reduce the sun’s glare.

The words under the 29-year-old Cuban’s eyes were “TU ERE MARICON” which can be translated as “You are a f—-t.”

The photos stirred up controversy on Twitter and several sports blogs Monday afternoon. Escobar was trending on Twitter by early evening.

Blue Jays general manager Alex Anthopoulos will address the media Tuesday afternoon at Yankee Stadium, the team said in a statement, with Escobar, manager John Farrell and coach Luis Rivera also expected to attend.

“The Toronto Blue Jays do not support discrimination of any kind nor condone the message displayed by Yunel Escobar during Saturday’s game,” the club said in a statement. “The club takes this situation seriously and is investigating the matter.”

MLB spokesman Pat Courtney also confirmed the commissioner’s office is looking into the reports.

The Jays were off Monday night before opening a three-game series Tuesday in New York against the Yankees.

With files from CBCSports.ca
© The Canadian Press, 2012
The Canadian Press

Romney says Obama voters ‘believe they are victims’

Already scrambling to steady a struggling campaign, Republican Mitt Romney confronted a new headache Monday after a video surfaced showing him telling wealthy donors that almost half of all Americans “believe they are victims” entitled to extensive government support.

He added that as a candidate for the White House, “my job is not to worry about those people.”

President Barack Obama’s campaign quickly seized on the video, obtained by the magazine Mother Jones and made public on a day that Romney’s campaign conceded it needed a change in campaign strategy to gain momentum in the presidential race.

“There are 47 per cent of the people who will vote for the president no matter what,” Romney is shown saying in a video posted online by the magazine. “There are 47 per cent who are with him, who are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it.”

“Forty-seven percent of Americans pay no income tax,” Romney said.

Romney said his role “is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives.”

Romney’s campaign did not dispute the authenticity of the video, instead releasing a statement seeking to clarify his remarks. “Mitt Romney wants to help all Americans struggling in the Obama economy,” spokeswoman Gail Gitcho said. “He is concerned about the growing number of people who are dependent on the federal government.”

About 46 per cent of Americans owed no federal income tax in 2011, although many of them paid other forms of taxes. More than 16 million elderly Americans avoid federal income taxes solely because of tax breaks that apply only to seniors, according to the nonpartisan Tax Policy Center.

Obama’s campaign called the video “shocking”

“It’s hard to serve as president for all Americans when you’ve disdainfully written off half the nation,” Obama campaign manager Jim Messina said in a statement.

An Obama adviser said the Democratic campaign might use Romney’s comments from the fundraising video in television advertisements. The official wasn’t authorized to discuss campaign strategy publicly and requested anonymity.

The private remarks are the latest in a string of comments from the multimillionaire Republican businessman whom Democrats have criticized as out of touch. During the primary campaign, Romney insisted that he was “not concerned” about the very poor, said he knew what it felt like to worry about being “pink-slipped,” and said that his wife drove a “couple of Cadillacs.”

Aides to Obama’s campaign said the latest video would help them continue to make the case that Romney doesn’t understand the concerns of average Americans.

Voters say they believe Obama has a better understanding of their problems and concerns than Romney does. A CBS/New York Times poll showed 60 percent of likely voters said Obama understands the needs and problems of people like them, while 37 percent said he did not. For Romney, the same question found that 46 per cent felt he did understand people’s needs, 48 per cent said he didn’t.

The remarks came at a closed-door fundraiser that Mother Jones reported occurred after Romney had clinched the GOP nomination. To protect the identity of the person who provided the remarks, Mother Jones blurred out the video and did not provide the date or location of the fundraiser.

Romney formally clinched the nomination May 29 and formally accepted it last month at the Republican convention in Tampa.

Many of the Americans who owe no income tax are reprieved because basic exemptions — such as the “standard deduction” — took their taxable income below the cutoff levels. The other half rely mainly on a variety of tax breaks, such as the credit that helps offset child care costs.

These Americans range from the very poor to solidly middle-class families with jobs, homes, cars and vacations. The Tax Policy Center says “relatively few nontaxable households” have incomes exceeding $100,000; families that make between $50,000 and $100,000 often owe no income tax because of breaks for their kids and for education.

Americans who pay no federal income tax still often pay an array of other taxes. They include payroll taxes for Social Security and Medicare, sales taxes, property taxes and state and local taxes.

A handful of extremely wealthy families do not pay federal income taxes. This summer the Internal Revenue Service reported that six of the 400 highest-earning households in America owed no federal income tax in 2009.

Still, many are low-income Americans. According to the August 2010 AP-GfK poll, a majority of Americans who make less than $30,000 a year are Democrats. But 27 per cent identify as Republicans, and 15 percent say they’re independents. About 57 percent say they will vote for Obama, while 38 percent back Romney. About 43 percent identify themselves as conservatives.

Obama faced a similar moment in the 2008 campaign, when he told donors that many Americans who are angry about their struggles “cling to their guns or religion.”

Romney’s running mate, Wisconsin Rep. Paul Ryan, made reference to that remark Monday at a campaign event in Des Moines, Iowa.

“I remember that one time when he was talking to a bunch of donors in San Francisco and he said people like us, people from the Midwest like to cling to their guns and religion,” Ryan said.

Ryan went on: “And I’ve got to tell you this Catholic deer hunter is guilty as charged and proud to say so. That’s just weird. Who says things like that? That’s just strange.”

© The Associated Press, 2012
The Canadian Press

MP pension reforms and budget bill coming next week

The government will include reform of the generous pension plan for members of Parliament in a second omnibus budget bill to be tabled next week, CBC has learned.

The CBC’s Hannah Thibedeau reports the government expects to pass the bill by Christmas, according to government sources. The government’s first 425-page omnibus bill to implement measures from its spring budget along with other changes was opposed by the NDP and led to an all-night voting marathon in June. That bill passed.

The sources said next week’s second omnibus bill would contain some potentially contentious measures but would be less controversial than the previous bill, which among other things speeds up the environmental review process for industrial projects such as mines and pipelines.

The government signalled in its March budget that it would tackle reform of MPs’ pensions, but did not provide details.

MPs can now collect their pension at age 55 if they leave Parliament after serving at least six years. That age of eligibility is expected to be increased.

It is also expected that the government will ask MPs to start contributing more to their pensions. Currently, for every dollar MPs put into their pension fund, taxpayers now contribute about $5 — or more, depending on how it is calculated. The MPs’ pension fund is also guaranteed to grow each year thanks to taxpayer contributions.

MPs now receive pensions of up to 75 per cent of their MP salary. That figure can grow, however, for MPs who earn more by serving in cabinet or as a committee chair, for example.

The government proposed in its spring budget to adjust the public service pension plan so that employee contributions over time equalled those of the employer.

“Comparable changes to the contribution rates will be made to the pension plans for the Canadian Forces, RCMP and parliamentarians,” the budget read.

Government’s fall priorities

The news of the proposed pension changes comes as MPs returned to the House of Commons today following a summer spent working in their ridings. After pushing hard to get some legislation through Parliament before the summer recess, the fall gives the government a chance to reset and turn its attention to new goals.

Government House Leader Peter Van Loan kicked off Monday by outlining the first bills the government wants to see move through Parliament.

  • 1. C-42 the RCMP Accountability Act: The bill contains measures expected for years following a 2007 investigation led by David Brown into the force’s management practices. The legislation would change the RCMP Act to streamline the discipline process and make it easier for Commissioner Bob Paulson to deal with cases personally. It would also establish a new Civilian Review and Complaints Commission. Public Safety Minister Vic Toews was first to speak about the bill today in the House.
  • 2. Another big bill to implement budget promises: Van Loan says the government will introduce another bill hundreds of pages long to bring in the budget measures that weren’t in C-38, the Budget Implementation Act, last spring. He gave a few hints about what will be in it — a tax credit to help small businesses hire new staff and Employment Insurance benefits for the parents of missing and murdered children — but otherwise suggested Canadians look to the March 29 budget document and figure out what wasn’t already included in C-38. Van Loan also made an overarching promise that the government will “continue to move forward on our ambitious job-creating plans to increase Canadian exports,” but wasn’t specific about what that means.
  • 3. C-37 the Increasing Offenders’ Accountability for Victims Act: The act would impose a victim surcharge on offenders when they’re sentenced, 30 per cent of any fine given to the offender. In cases where there’s no fine, the offender would be charged $100 for lesser crimes and $200 for more serious crimes. A summary posted on the Library of Parliament’s website says judges would retain the discretion to impose an increased surcharge in some circumstances.
  • 4. S-7 the Combatting Terrorism Act: This bill has already received the approval of the Senate, and now moves to the House of Commons for debate. It would make changes to current laws that include increased penalties for harbouring terrorists and reinstates provisions allowing for investigative hearings and preventive arrest.
  • 5. C-43 the Faster Removal of Foreign Criminals Act: One of the reforms being pushed by Immigration Minister Jason Kenney, C-43 would limit the appeals open to those inadmissible because of serious criminality where the punishment is six months or more in jail. The bill would let the government deny visas to visitors based on public policy considerations and would let the government impose conditions on people subject to deportation orders.

What wasn’t on the list:

C-30 the Protecting Children from Internet Predators Act: Toews’ lawful access bill, otherwise known as the online surveillance or warrantless wiretapping bill, in which the only reference to children, minors and predators is in the short title. The bill would force companies that provide internet services to track users traffic and keep records, as well as turn over customer information when police ask for it — even without a warrant. A number of privacy advocates spoke out against the bill and Toews faced enormous public backlash to the bill after he told an opposition critic that he could stand with the government or with the child pornographers. The government didn’t bring the bill back to the House for debate and won’t say when they plan to return to it.

With files from Laura Payton

CAW extending talks with GM, Chrysler

The Canadian Auto Workers union says it will continue negotiating with GM and Chrysler past the midnight strike deadline, averting a labour walkout for now.

The union, which hours earlier struck a tentative deal with Ford Motor Co., said it will keep talking with the remaining automakers as long as progress is being made.

But it also said that if talks stall, it will issue a 24-hour strike notice.

“We have agreed with the CAW to extend the agreement,” LouAnn Gosselin, head of communications for Chrysler Canada, said in an email. “We are currently reviewing the tentative agreement that has been reached with Ford.”

Earlier, CAW head Ken Lewenza warned that the union would ask Chrysler and GM to accept the Ford deal as a pattern settlement, otherwise “we will have to withdraw our labour.”

“That is the last tool in the bargaining toolbox,” he said. “The minute we go out on strike, I’m going to be able to look you in the eye and say we had no choice.”

“So I say to Chrysler and General Motors respectively; don’t force us to use that last tool.”

Ford employs 4,534 unionized workers in Canada. Chrysler and GM employ more than 8,000 unionized workers each.

Negotiations between the Big Three North American automakers and their Canadian workers had been under the gun, as a midnight deadline to reach a deal neared. The CAW had said its strategy was to focus its energies on negotiations with Ford before trying to make a similar deal with the other companies.

“We have unanimously agreed to take to our membership a tentative collective agreement that we believe meets the objective of our unions, of course, meets the needs, the objective of our membership but just as important, meets the objectives of Ford Motor Company in terms of their position for future investment which, as we all know, are challenging times in the auto industry,” Lewenza said.

The four-year agreement will see no base wage increases. But if the deal is approved, employees would be eligible for a $3,000 bonus after ratification. As well, in December 2013, 2014, 2015, employees would receive a $2,000 cost-of-living bonus.

Lewenza also said that Ford will create approximately 600 new positions in Canada, most of those at Ford’s Oakville, Ont., assembly plant.

A Ford Canada spokeswoman said Monday that the agreement will help the company remain competitive, but declined to provide additional details as the deal still has to be ratified by CAW members.

“We believe that the tentative agreement offers unique-to-Canada solutions that will improve the competitiveness of the Canadian operations while providing employees the opportunity to earn a good living,” said Lauren More.

With files from The Canadian Press

Investors battle against ‘boardroom coup’ at East West

Consolidated General Minerals, which holds 29.9 per cent of East West, has called a meeting to put two of its representatives on the board in place of the existing two non-executive directors. But yesterday Hong Kong-based Sun Hung Kai Financial, a 9.4 per cent stakeholder, said it would vote against the plan.

It said the move would leave Consolidated General controlling half the board, leaving holders of 70 per cent of the shares with “no representation”.

Sun Hung asked other shareholders to contact it “so that we can ensure CGM’s resolutions are not passed and the value inherent in East West can be unlocked for the benefit of all shareholders.”