More bad news for Australia's resources sector

More bad news continues to pour in for Australia’s resources sector.

Even as global analysts issue dire predictions about the country’s economy in the aftermath of iron ore prices tanking and BHP pulling a $20 billion project, LNG projects worth $100 billion worth are now at risk.

The discovery along Africa’s east coast of the world’s biggest gas finds in a decade has threatened to undo investment plans on the other side of the Indian Ocean, reports Bloomberg.

Royal Dutch Shell Plc (RDSA), BG Group Plc (BG/) of the UK and France’s Total SA (FP) may scale back projects to build liquefied natural gas export plants in Australia and switch to Tanzania and Mozambique, where the new prospects lie and will cost about half as much, according to Jefferies International Ltd.

The LNG boom in Australia, where $180 billion of planned investment was set to make gas the country’s fastest-growing export over the next five years, risks losing strength as labor and material shortages force up building costs.

As energy companies consider the next $100 billion of projects, a switch to East Africa would hold back Australia’s market share in China and India, where energy consumption is forecast to rise more than 60 percent by 2030.

Read more: Australia's $100 billion gas projects at risk

Twiggy in damage control, pumps in his own money

Fortescue Metals Group chairman Andrew Forrest has spent nearly $39 million in two days increasing his shareholding in the mining company he founded, as its shares and iron ore prices plunge.

Mr Forrest bought five million shares for $20.1 million at an average price of $4.02 on Monday.

He spent another $18.5 million on Wednesday buying the same amount of shares at $3.70, in what is being seen as an attempt to prop up confidence.

Investor anxiety about the company's massive debt level is rising as quickly as the iron ore price is falling. The commodity is the miner's only earner.

The spot iron ore price fell four per cent to $US90.30 ($A87.64) a tonne overnight, according to The Steel Index.

Related: Australia's economy 'heading for disaster'

This is well below the $US120 ($A116) "price floor" that mining executives said the ore wouldn't drop below, as recently as a month ago.

Mr Forrest's stake Fortescue now stands at 32.8 per cent and follows a $105 million purchase of shares over the course of more than a week in June.

Fortescue is committed to a $9 billion expansion that is unprecedented in the Pilbara region of Western Australia. The expansion, which is largely debt funded, will nearly triple Fortescue's iron ore output to 155 tonnes a year by next June.

Fortescue shares were trading at around three-year lows on Thursday, down three cents at $3.62 by 1553 AEST.

Iron ore prices fall

The iron ore price is being pushed down by a range of China-related factors, including too much investment in steelmaking there creating an oversupply.

China's economy and demand has slowed at the same time Australian producers, including Fortescue, BHP Billiton and Rio Tinto are increasing production.

Fortescue is more vulnerable than its more diversified mining peers, with a falling iron ore price reducing the cashflow it needs to pay back debt, which is tipped to peak at no less than $10 billion.

Morningstar analyst Mathew Hodge said the timing of the recent iron ore price fall could not have been worse for the company.

Related: BHP axes $30 billion project

"If it happened 12 months or so ago, before they really started ploughing into the capex, they could have just sat back and let the cashflow fix up the balance sheet," he told AAP.

"To stop now would be the worst of both worlds because you've already got a large proportion of the money spent, so they wouldn't be generating any revenue from that."

He said Morningstar was not positive about the outlook for steel inputs, such as iron ore and coking coal because steelmaking had increased to such high levels in China there was less of a future upside.

Fortescue chief executive Nev Power said he was confident the iron ore price would rebound to the $US120 ($A116) a tonne level as Chinese steel mills began running down inventories.

He told a business lunch the company had taken on extra debt as a short-term, flexible funding solution because of the volatility of iron ore prices, and that it could quickly pay the debt back if needed.

BHP Billiton's decision to postpone the $30 billion Olympic Dam mine expansion might be a positive as it would help to reduce Fortescue's development costs, including labour and equipment.

"I think the silver lining in this is the deferral of some of those projects will take the heat out of the labour market," Mr Power said.

"We'll see more sensible expectations there, and it will also free up some capacity in some of our contracting community where it has been very stretched," he said.

Aussie dollar falls

The Australian dollar also fell to a five-week low on Thursday, following the weaker domestic share market and lower iron ore prices.

The Australian dollar's fall on Thursday followed a one per cent loss in the value of the Australian share market and a 2.5 per cent fall in the value of securities in the materials sector that comprises mostly miners.

On Friday morning, the local unit fell further over euro concerns and was trading at 102.88 US cents, down from 103.36 cents on Thursday.

CMC foreign exchange dealer Tim Waterer said there had also been heavy falls in iron ore prices in the past 24 to 48 hours.

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