Fortescue Metals Group Ltd., seeking to become Australia's third-largest iron ore producer, will use cash flow to fund a planned expansion that's estimated cost less than A$2 billion ($1.6 billion) and won't need to tap debt markets.

    The expansion will be completed by the end of next year and be ``funded only from a portion of our free cash flow, with no external debt requirements at all,'' Chief Executive Officer Andrew Forrest told reporters on a conference call today from Perth. The second-stage expansion will boost output 45 percent to 80 million metric tons a year.

    The worst credit crisis since the Great Depression may make it harder for some mining companies to finance expansions. Fortescue wants to increase production and build a second export port to meet surging demand from steelmakers in China.

    ``The free cash flow of an 80 million ton operation will be in excess we think of about A$5 billion a year,'' Forrest said. ``You can quite comfortably take that free cash flow from your 80 million ton operation then expand it out to 120 million tons and then 160 million tons.''

    Fortescue jumped 9.6 percent to A$5.70 at 4:10 p.m. Sydney time on the Australian stock exchange. The company has a market value of A$16 billion.