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Australian iron-ore mining company Fortescue Metals Group Ltd. (FSUMY, FMG.AU) is looking to raise US$2 billion in the U.S. and European bond markets, according to two people familiar with the matter, as the miner accelerates its expansion plans to capitalize on the currently high price of iron ore.

The Perth-based miner, Australia's third-largest listed producer of iron ore behind global giants BHP Billiton Ltd. (BHP) and Rio Tinto Ltd. (RTP), refinanced another portion of its debt on Oct. 10 in order to give it flexibility to expand.

A Fortescue representative would not comment on the prospective offering.

On Thursday, in its quarterly production report, Fortescue indicated cash costs are on the rise, increasing 8% from the prior quarter. Fortescue already has higher production costs than rivals BHP and Rio Tinto. The company is pursuing an aggressive growth plan while iron ore prices are high.

Analysts expect the price of the commodity to decline in a few years as the iron ore mining industry becomes more productive globally. Most analysts expect the price of iron ore to fall to US$75/ton from the current US$150/ton level by the middle of this decade, given a large new supply of iron ore coming into the market due to increased investment in iron ore mining globally.

Fortescue is looking to begin marketing its potential US$2 billion deal to investors in the U.S. and Europe next week, according to one of the people familiar with the situation. No further details about how the bonds would be structured were immediately available. J.P. Morgan and RBS will be involved in underwriting the deal, according to one of the people. Fortescue announced earlier this week it entered a US$2.04 billion debt facility with those very same banks.

The relative health of the U.S. high-yield bond market makes it an attractive place to raise debt for Fortescue. Fortescue is currently buying back bonds in the U.S. high-yield market, one investor said, as it is replacing existing project-based senior secured notes with its new US$2.04 billion corporate bank facility.

If it does pursue a deal in the U.S. high-yield market, Fortescue would be following other Australian corporations heading offshore for their financing needs.

Supermarket giant Woolworths Ltd. (WOW.AU) recently tapped the U.S. debt markets for US$1.25 billion of funds, in part to fund a recent A$700 million share buy back.

And on Friday, Adelaide-based oil and gas explorer Santos Ltd. (STO.AU) said it increased its funding in the European hybrid markets to EUR1 billion, potentially reducing the size of a share issue it may pursue in the Australian equities market.

Fortescue's US$2.04 billion facility announced this week carries initial interest of 7.5% and is linked to the London interbank offered rate.

The miner said that refinancing will save it about US$60 million a year and could grow to more than US$100 million a year in savings as banking conditions improve globally.

The refinancing helps the miner expand because the notes that it is replacing with the new US$2.04 billion facility "largely restricted" the company to its Chichester Hub in Western Australia during the 10-year life of the notes, whereas the new facility has no such restrictions.

While freeing Fortescue from these constraints, analysts pointed out the group's expansion plans still carry execution risk.

"While it releases the shackles, our concerns over project delivery and potential capex and (operating expenditure) overruns have not disappeared," Deutsche Bank said in a note in which it downgraded Fortescue to Sell earlier this week.

Still, Macquarie called the refinancing "a potential game changer".

"The debt raising illustrates Fortescue's ability to procure external debt funding, potentially setting up funding of the Solomon project," the broker said earlier this week, while warning that expanding the Chichester project at the same time as building the Solomon greenfield project does carry execution risk for the group.

-By Michael Aneiro and Cynthia Koons, Dow Jones Newswires; +61 2 8272 4691; cynthia.koons@dowjones.com (David Fickling in Sydney contributed to this story)