Fortescue declares record dividend following profit rise, iron ore recovery
Fortescue’s founder is set for a dividend bounty as it rewards shareholders, following a stellar recovery in profit.
Fortescue Metals Group founder Andrew “Twiggy” Forrest is set for a $124.5 million pay day after his resurgent iron ore mine revealed a dramatic hike in dividends.
Fortescue today booked a net profit of $US984 million for the year through June, a 210 per cent increase on year-on-year, reflecting the miner’s stringent cost-cutting program and a recovery in the iron ore price.
The miner (FMG) will pay a record-high 12c final dividend, up from just 2c a year ago and bringing the year’s total payout to 15c per share — a hefty increase on the prior year’s 5c distribution. Mr Forrest, who owns a 33.3 per cent stake in the company, will be the biggest beneficiary of the dividend.
The bumper profit came despite a 17 per cent slide in annual revenue to $US7.08 billion.
Fortescue’s bottom line has been buoyed by strict cost-cutting measures across the group, which have made the miner one of the lowest-cost producers of iron ore in the world and also allowed it to aggressively pay down its debt position.
Operating costs shrank 43 per cent over the year after the group slashed costs for a 10th straight quarter.
“Successful cost improvement measures and lower capital expenditure have more than offset the impact of falling iron ore prices to generate strong free cash flow,” chief executive Nev Power said.
JP Morgan analyst Lyndon Fagan said he expected the market to respond positively to the results. He said the higher than expected dividend would likely represent a base for future dividends, noting that annualising today’s dividend implied a 4.9 per cent yield.
“The board is clearly comfortable with FMG’s balance sheet,” Mr Fagan said.
Fortescue shares have rallied from $1.64 a year ago to around $4.90 today, but Mr Fagan said the company looked “compelling” based on the current iron ore price.
“While we caution spot iron ore of US$61/tonne could drift lower heading into year end due to slowing seasonal steel demand in China, and rising low cost supply, a spot scenario highlights the material upside to FMG’s near term [free cash flow] if prices stay stronger for longer,” Mr Fagan said.
After bottoming out under $US40 late last year, the price of iron ore has since posted a substantial recovery. The iron ore price has inched higher as the commodity continues to defy warnings that the effect of Chinese stimulus spending so far this year may not last, trading above $US61 a tonne in the most recent session, according to The Steel Index.
The commodity’s strength over the course of 2016 is surprising many analysts, raising hopes that the market may have bottomed.
The miner has repaid $US2.9bn worth of debt over the last financial year, leaving its pile of debt at $US5.2bn.
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