Fortescue Metals Group Ltd.

That said, we view Australian iron ore as fundamentally more sticky owing to its low-cost profile, scale, geographic adjacency, and the role of steel consumption in China's current investment-led economic model. Nevertheless, Fortescue's position as the highest-cost producer of scale makes it more vulnerable than its major peers to a structural correction in iron ore prices, in our opinion. The stable outlook reflects our expectation that Fortescue's financial policy and growth strategy will be responsive to prevailing market conditions. We expect the company's funds from operations (FFO)-to-debt ratio to be higher than 30% and debt-to-EBITDA ratio lower than 3x when industry conditions remain favorable. In our opinion, Fortescue's credit metrics have sufficient headroom at the current rating level to withstand

...Strong cash generation and a robust balance sheet should support Fortescue Metals Group Ltd.'s sizable capital expenditure program. We expect healthy levels of free operating cash flow despite our expectation of approximately US$5.4 billion worth of capital expenditure over our next two forecast years, including major projects, sustaining capital, and exploration studies. The increased investment in major projects should be comfortably accommodated within Fortescue's rating headroom under our base-case operating scenario. We expect iron ore prices to reduce as Brazilian iron ore supply gradually returns to the market. COVID-19 and catastrophic tailing dam failures have curtailed supply out of Brazil, the world's second-largest iron ore producer. We forecast iron ore prices to average US$85 per ton (/t) for calendar 2021, US$70/t for 2022, and US$65/t for 2023. Fortescue's Eliwana project will backfill its Firetrail mine as it begins to taper off, while the Iron Bridge project will grow...

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