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Fortescue sells Solomon  power station
Fortescue sells Solomon power station

Shares in Fortescue Metals have plunged by more than 8 per cent to their lowest level in three years, amid a falling iron ore price and concerns about the miner’s about-face on expansion plans.

Fortescue shares closed down fallen 29 cents, or 8.5 per cent, to $3.12.

A volume of over 63 million Fortescue shares have changed hands - the highest on the Australian Securities Exchange.

Iron ore miners, including Rio Tinto and BHP Billiton and smaller caps Atlas Iron and BC Iron all posted share price falls of between 2 and 4 per cent.

Ratings agency Fitch has downgraded its outlook for FMG to negative from stable.

Fitch said the negative outlook reflected the increasing pressure on the miner’s liquidity and debt covenants that it was facing following steep falls in iron ore prices.

"The peak debt requirements of the company’s large debt-funded capacity expansion is coinciding with a rapid and continuing decline in iron ore prices,” it said.

"The current outlook is negative.

"As a result, Fitch’s sensitivities do not currently anticipate developments with a material likelihood, individually or collectively, of leading to a rating upgrade."

Fitch said that while Fortescue’s plans to defer part of its plan to triple production to about 155 million tonnes a year should alleviate some of the liquidity and covenant pressure in 2013, the ability to satisfy its covenants depended on iron ore prices recovering to about $US110 ($A108) a tonne.

Fortescue founder and chairman Andrew Forrest has lost about $490 million from the value of his 33 per cent shareholding in the past two days alone, having taken a cumulative $3 billion hit in the past four months.

Mr Forrest spent nearly $39 million increasing his stake last week in what was viewed as an attempt to prop up the stock.

Even some good news for its balance sheet could not help the share price, after Fortescue said it would pocket $US300 million ($A294.59 million) from the sale of a power station at its Solomon mine in the Pilbara to a Canadian company.

Fortescue’s woes are related to iron ore spot prices that had dropped to about $US87 ($A85.43) a tonne today, less than half the record levels of about $US180 ($A176.76) a tonne in the first half of calendar 2011.

Iron ore is Australia’s biggest export earner.

Fortescue announced plans on Tuesday to shelve $US1.6 billion ($A1.57 billion) of expansion plans and cut hundreds of workers’ jobs.

Less than a fortnight ago, Fortescue chief executive Nev Power said the miner would press on with its $US9 billion ($A8.84 billion) largely debt-funded expansion of output to 155 million tonnes a year by next June.

Now it is only planning to expand to 115 million tonnes a year.

Analysts from investment bank UBS forecast a return to $US120 a tonne for the spot iron ore price by the end of the year.

USB analyst Tom Price said in a note that Chinese steel mills that were currently oversupplied with steel and iron ore, would want to start re-stocking ore before the northern hemisphere winter in December.