Fortescue Metals hits record September quarter shipments as iron ore falls

The iron ore giant, led by Andrew Forrest, reports a strong start to the new financial year, with shipments up even though its mining rates fell during the quarter.

Fortescue Metals Group has been hit with a big lift in its mining costs as the iron ore price falls, despite a record start to its iron ore exports for the year, with chairman Andrew Forrest saying soaring diesel costs underline the value of his ambitious decarbonisation plans.

The iron ore major booked a strong start to the new financial year, shipping 47.5 million tonnes in the September quarter, up 4 per cent on the three months of the previous financial year.

Dr Forrest said the total was a record first quarter for the company, although both mining and processing rates dipped compared to the September 2021 quarter. Fortescue’s average cash production costs were up 16 per cent compared to the same time last year, at $US17.69 a tonne, with the company saying the lift reflected broader inflationary pressures hitting the mining sector, including fuel and labour costs.

Dr Forrest told analysts the bulk of rising costs came from rising fuel prices, saying the sharp lift in fuel costs underlined the value of Fortescue’s $US6.2bn ($9.6bn) plan to end its use of fossil fuels by 2030. He said the plan would ultimately save the company about $US3bn and “shave 20 to 25 per cent off our costs, if not a little more by that stage”.

Fortescue chairman Andrew Forrest.

“The biggest cost driver is fossil fuel, and diesel in particular. We‘ve mitigated that to a point with gas, but the big one is diesel and that’s why we actually started the decarbonisation. process last year,” he said. “We’ll save $US3bn over the build and commissioning period and then $US820m every year after that.”

Dr Forrest said he was not concerned that talk of a looming shortfall in lithium and other battery making materials, and particularly lithium, could disrupt its plans, saying Fortescue’s existing exploration and development plans in the battery materials sector would eventually help ease that shortfall.

“I‘m just not seeing a shortage. There are so many lithium projects we get offered. So it’s just one of those things which is just not keeping me awake at night,” he said. “Fortescue Metals Group is a fantastic both explorer and developer, but also acquirer of assets.”

Fortescue has previously been linked to the potential acquisition of operating lithium mines such as Greenbushes in Western Australia. The company is already exploring for lithium in Portugal, and this year pegged vast swaths of ground prospective for lithium and nickel deposits in the south of WA. It is also exploring for copper in the Americas and Kazakhstan.

Fortescue’s decarbonisation efforts will be led by its Fortescue Future Industries arm, and FFI boss Mark Hutchinson told analyst that the company would initially buy batteries and other renewable energy equipment from existing suppliers, rather than developing its own manufacturing capabilities. “But we are looking at lithium longer term and batteries and seeing what we can do, particularly with the mining capabilities in the company, and also looking at other alternatives as well like using hydrogen and even pumped storage,” he said.

But while decarbonisation plans may save it cash in the longer term, the iron ore miner’s margins are also being squeezed by softening iron ore prices.

Fortescue Metals Group has been hit with a big lift in its mining costs as the iron ore price falls, despite a record start to its iron ore exports for the year.

Fortescue’s realised price also fell in line with the dip in the iron ore price, with the company receiving an average $US87.43 a dry metric tonne in the period – down from $US108 a tonne in the June quarter. Fortescue received an average 85 per cent of the average benchmark price during the quarter, up from an average 78 per cent in the final three months of the previous financial year.

The benchmark for iron ore grading 62 per cent iron averaged $US103.31 during the quarter.

The iron ore giant finished September with $US3.3bn in cash, down from $US5.2bn at the end of June, after paying out $US2.4bn in dividends and spending $US653m on its capital projects.

RBC Capital Markets analyst Kaan Peker said the results were broadly in line with estimates, with the quarter’s annualised run rate of 190 million tonnes sitting in the middle of Fortescue’s 187 to 192 million tonne output guidance, and cash costs slightly lower than consensus expectations.

Fortescue shares closed down 6c to $16.07 on Thursday.