Fortescue Metals Group will pay a Chinese shipbuilder $275 million for  construction of four very large iron ore carriers, which, when completed, will account for roughly 6% of FMG’s fleet requirements. (Photo courtesy of FMG)
Fortescue Metals Group will pay a Chinese shipbuilder $275 million for construction of four very large iron ore carriers, which, when completed, will account for roughly 6% of FMG’s fleet requirements. (Photo courtesy of FMG)

Fortescue Metals Group has signed a contract with a Chinese shipyard for the construction of four very large ore carriers valued at about $275 million. The 260,000-dwt vessels will account for approximately 6% of Fortescue's iron-ore shipping fleet requirements, are larger than traditional Capesize vessels, and incorporate design specifications ideally suited to tidal conditions at Fortescue's Herb Elliot port near Port Hedland, Western Australia.

The vessels will be delivered from November 2016 through to May 2017, with the majority of payments made upon delivery and funded from operating cash flows.

Fortescue CEO Nev Power said the contract represented a strategic decision to secure long-term, low-cost freight on vessels that will complement infrastructure at Herb Elliot port and maximize shipped volume.

"We are already in the shipping business, with an annual forecast spend of around $1.5 billion a year," Power said. "These vessels are a natural extension of our supply chain and will play a significant role in increasing efficiencies at the port and lowering costs. They also reflect and strengthen our close relationship with China, our largest customer."

Power also said the contract was consistent with Fortescue's strategy of improving efficiencies and lowering its cost base. "Owning and managing vessels especially designed to complement conditions at the port and to maximize shipped volume is expected to reduce our costs below benchmark rates."

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