Fortescue Metals Group's bid to cut costs and stave off its collapse when iron ore prices slumped last year appears to have hit the small end of town, with one of its suppliers owed about $10 million being placed in the hands of liquidators.
Creditors of Queensland-based Fuel-Sys Installations voted to appoint Hall Chadwick's Perth arm as liquidators of the company on Thursday.
Fuel-Sys, which installs and repairs fuel lines and tanks, was working on Fortescue's Solomon mine expansion project.
Debt-laden Fortescue was forced to abruptly shelve these expansion plans in September for about three months amid a plunge in iron ore prices to levels below its cost of production and associated financing costs. It also slashed spending, including cutting back on company barbecues and axed about 1000 jobs, but has since restarted its mine expansions after renegotiating its debt pile with New York-based lenders.
The fall in iron ore price to below $US90 a tonne affected the entire resources industry, with many examples in WA during the period of miners extending the time they took to pay their suppliers - or extending credit terms.
Sources who contacted _WestBusiness _ said this extended payment window was the main issue for Fuel-Sys, although Fortescue denies the claims, and argues the Queensland firm was unable to meet its contractual obligations.
Fuel-Sys got into serious trouble in November and soon after launched legal proceedings against Fortescue with the backing of a litigation funder. The company claimed it was owed $10 million by Fortescue, but the miner hit back yesterday, saying it did not owe any money.
"Fuel-Sys Installations was contracted to design and construct a fuel facility at the Solomon mine," a spokeswoman said.
"They were unable to complete the project within the parameters of the contract.
"Fortescue rejects any claim for payment beyond those amounts Fuel-Sys Installations was entitled to be paid under the contract, which amounts Fortescue has already paid.
Cameron Shaw, of Hall Chadwick, said that it was too early to assess Fuel-Sys' exact position, but that its creditors were in turn owed "in the vicinity of $6 to $7 million".
Mr Shaw said he was in talks about continuing the Fortescue legal action, but no decision had been taken.
"We are assessing it (the legal case) with the litigation funder, but it is early days yet," Mr Shaw said.In one of the wildest swings in iron ore prices seen in recent years, a collapse in iron ore demand from China as steel mills wound down their stockpiles, prompted iron ore prices to drop to as low as $US87. They have since rebounded sharply to $US154 as the Chinese economy picks up.