Mining debt jitters

Andrew Forrest’s Fortescue Metals Group isn’t the only iron ore miner getting a nervous diagnosis from US debt markets.

The prices at which Fortescue’s debt is trading have fallen sharply in recent months, suggesting a rise in anxiety among holders over its long-term ability to service its borrowings.

Those debts are trading at as little as 54.1c in the dollar at the moment, and the various packages have fallen by between 16 per cent and 30 per cent over the past two months.

But a closer look at the recent trading in the debts of Fortescue’s iron ore rivals BHP Billiton and Rio Tinto shows that debt market investors are also losing their appetite for their debt.

While comparing the trading of the various debts is an inexact science, given the differences in factors such as interest rates and maturity dates, the trend is clear.

One callable facility of $US1 billion in BHP debt, for example, has fallen by more than 9 per cent over the past couple of months, while a $US1.2bn parcel of callable Rio Tinto debt has dropped 11.6 per cent over the same time.

Interestingly, the price of BHP’s debts appears to have held up better than that of Fortescue and Rio Tinto, despite the mining giant also having to grapple with the impacts of the Samarco dam disaster in Brazil and the ongoing slump in oil prices, in addition to continued weakness in iron ore.

Samarco continues to weigh on BHP, with Brazilian Attorney-General Luis Inacio Adams yesterday saying the company and its partner at Samarco, Brazilian giant Vale, must serve as guarantors of the eventual clean-up and reparations.

Brazil is seeking up to $US4.9bn from BHP and Vale to restore the river basin and communities affected by the disaster, which left 17 people dead.

Additional reporting: Lisa Allen, Paul Garvey