Debt: Fortescue Boosts Raising To $US2 Billion, Nexus Cuts Reserves

When is a billion dollar debt raising not enough?

It seems when it is being done by the aggressive Fortescue Metals Group, which yesterday revealed plans to issue another $US1 billion in junk bonds to fund its expansion plans to boost iron ore production to 155 million tonnes a year.

This morning the company revealed that it had boosted the raising to $US2 billion following strong demand in US credit markets overnight.

High yield or junk bond debt is in strong demand at the moment from investors looking for yield with official rates in the US low and 10 year bond yields around 2.16% (up 0.16% overnight though).

The issue will be in two tranches of $US1 billion each, the first at 6% for five eyars, the second 10 years with a yield of 6.875%.

No wonder the issue was doubled with those yields.

Fortescue is targetting June 2013 for the big production lift, and the company will also need to pay for an expanded mining fleet, the cost of which has been estimated by Fortescue at $US1.6 billion.

That no longer seems to be as much of a problem for Fortescue.

And there's a further $US1.2 billion in funding for the $US8.4 billion project that will be needed, meaning Fortescue may have to issue more bonds in another fund raising later this year.

Fortescue successfully raised $US1.5 billion on American markets late last year, and this latest raising will tap the same US debt markets.

The raising comes as conditions improve in international markets after the Greek bond swap/default scare of the past few months.

It also comes five days after Standard and Poor's lifted Fortescue's credit rating from B+ to BB minus, still junk, but a higher quality junk bond.

At the end of December, Fortescue said it had cash on hand of $US2.5 billion after the $US1.5 billion raising last October.

It also had committed contracts for expansion worth of $US5.6 billion, up $US1.3 billion in the December quarter.

Fortescue shares rose 6c to $5.83 yesterday in a market up around 0.9% on the day.

According to Bloomberg Fortescue has $US5.6 billion of bonds and loans outstanding.

Watch the shares in Nexus Energy get trashed today after the company late yesterday wrote down the value of its Bass Strait gas field by more than half.

Nexus shares closed at 20c yesterday ahead of the filing with the ASX which revealed the shock cut.

The Melbourne-based oil and gas company said there was less gas at its Longtom field than first thought, after a seismic review.

After taking into account gas already extracted, Nexus said its previous estimates of recoverable gas were virtually double the amount that now appears possible.

"The Longtom reserves review was undertaken after production data from the existing Longtom-3 and Longtom-4 producing wells indicated the field is more complex than originally thought.

"As outlined in Nexus' 2011 Annual General Meeting presentation, extensive geological and geophysical studies have been conducted over the last 18 months.

"This work has demonstrated that the geological model underpinning the last 2009 reserves report (pre-production) is no longer valid and that reservoir compartmentalisation has impacted recoverable gas reserves.

"A preliminary report, issued by GCA on 14 March 2012, has revised the important Proved and Probable (2P) reserves to 137

"On a like for like comparison, the pre-production 2009 reserves has reduced from 350PJs to 170 PJs, after taking into account the 32 PJs produced to 31 December 2011<" the company said in yesterday's announcement.

The concession means an impairment of $163 million will be applied to Nexus's accounts, leaving the carrying value of the field at $148 million.

The company insisted it would be able to satisfy its gas supply contract with Santos, despite the slashing of reserves.

Nexus picked up the asset after it was abandoned by BHP in the late 1990s because it was not economically viable.

It seems BHP may have been on the money?