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Fortescue shares have been placed in a trading halt, as the company reassures investors that talks with banks about its debt ‘‘progressed significantly’’ overnight.
The announcment follows the iron ore miner’s 14 per cent plunge yesterday, after it was revealed that Fortescue had asked its creditors for waivers on its loan conditions.
This morning, the company said it remained concerned about continued "rumours and speculation in respect of its bank related facilities’’.
‘‘Discussions with its banks have progressed significantly overnight and it is in the best interests of shareholders to halt trading in Fortescue’s securities," company secretary Mark Thomas said in a statement filed to the Australian Securities Exchange.
‘‘Fortescue re-iterates its announcement from yesterday that it is in compliance with its banking covenants and is conducting discussions with its supportive banking group.’'
Fat Prophets resources analyst David Lennox criticised the miner for not fessing up earlier to its debt negotiations with lenders.
“We think that this information, if they had been talking to the banks for weeks, should have been made known to shareholders and the market at that point, not now,” he said.
Mr Lennox also noted Fortescue had “very thin” operating margins, which is why it needed to look at covenants now, after the iron ore price's recent slump.
Should the iron ore price stay at $US90-$US100 per tonne, it would force Fortescue to write down the value of its iron ore assets by the end of December when its balance sheets are published, he said. “That may be why they’re taking a pro-active step in dealing with the covenants now.”
Shares in the company tumbled after Fortescue's debt plea to its creditors yesterday, falling 48 cents, or 13.8 per cent, to $2.99.
The slowdown in growth in China has weighed on the price for iron ore, sending it below the crucial $US110 a tonne price level considered necessary for Fortescue to pay its debts.
The benchmark price for a tonne of iron ore at the Chinese port of Tianjin fell a second day yesterday, sinking to $US96.10 a tonne from $US98.10 the day before.
Fortescue cut 1000 staff members and pared back production plans earlier this month, in a move to slice $300 million from the company's costs, as the outlook for iron ore demand becomes less certain.
The company has piled on nearly $9 billion in debt, to fund its rapid production expansion to meet demand from China that pushed the price of iron ore up to $US191 a tonne last year.
A price of $US110 per tonne is considered the ‘‘floor’’ to keep a raft of mining projects viable and profitable.
Plummeting iron ore prices have invited a wave of short sellers into Fortescue stock, which has seen sharp declines in recent sessions. ‘‘Shorting’’ a stock is the practice of selling borrowed shares with the intention of buying them back at a lower price.
Currently 15 per cent of Fortescue’s floating shares are being shorted, making it one of the most shorted stocks on the local market, according to Bloomberg data.