Fortescue posts record profit, lifts dividend
Fortescue Metals’ record profit, and higher dividend, comes as it ships more iron ore than ever before and prices soar.
Fortescue Metals chief executive Elizabeth Gaines has warned that Western Australia’s hard border lockdown risks wage inflation and skills shortages in the sector, as the surging iron ore price drove the company to a record $US4.7bn ($6.5bn) net profit for the year.
Fortescue booked record earnings before interest, tax, depreciation and amortisation of $US8.3bn on record revenue of $US12.82bn as the company shipped 178.2 million tonnes of ore from the Pilbara and realised an average earnings margin of $US52 a tonne.
It declared a final dividend of $1 a share, taking its total shareholder payout in 2020 to $1.73 a share.
On paper, Fortescue’s year was all but unmarred by the coronavirus, which has devastated balance sheets across Australia’s non-mining sector, and Ms Gaines said the record result was a testament to the willingness of its staff to work despite the extraordinary challenges thrown up by the pandemic.
“This is a year unlike any other year. We started dealing with that in January, when it started to impact on some of our team members in China,” she said.
“We saw our whole sales and marketing team operate for quite some time in China, and then we saw the impact on our operations through extended rosters and the people who agreed to temporarily relocate to WA and maybe haven’t seen their families for five months or so.
“It’s not just the financial outcome, but to deliver that under those circumstances is a really significant achievement by the whole team.”
But although Fortescue delivered lower costs for the financial year, with cash costs of production down 1 per cent at $US12.94 a tonne, Ms Gaines said state border restrictions would begin to push up wages across the sector and exacerbate existing skills shortages.
She said additional costs related to COVID-prevention measures were adding about $US20c a tonne to Fortescue’s costs, with the company flagging cash production costs of $US13-$US13.50 a tonne for the current year.
The Labor government of Mark McGowan has maintained strict border restrictions, and has flagged further crackdowns on fly-in, fly-out workers, saying recently he saw no reason workers should live outside the state in which they worked. Last week Mr McGowan said WA’s border restrictions could last past March next year if the spread of the coronavirus in eastern states continued.
Ms Gaines said Fortescue supported the border restrictions recommended by health authorities, but said wage inflation across the mining sector could be one of the results.
“It’s a real possibility, both in terms of skill shortages and demand for resources, particularly in those very highly skilled areas,” she said. “There were some key skills and trades even before this where we were seeing strong demand just because there was so much activity occurring across the sector and in the Pilbara in particular.”
Ms Gaines said the state government was still working with the sector to ensure that access to highly skilled workers was possible, despite the border restrictions, and confirmed Fortescue had seen a rise in the number of its non-WA workers commit to permanent relocation to WA as the pandemic drags on. But she said the mining sector would always need some mobility in its workforce for highly skilled and specialised workers.
“Health and safety has to remain the priority, and a science-based approach to the issue is also important,” she said. “It is in everyone’s interest to make sure there is access to certain skills and there are some skills where, for whatever reason, some of those people choose to reside outside of WA.
“And these are some of the very highly skilled workforce, so making sure we continue to have ongoing access to those skills requires collaboration.”
Fortescue shares jumped sharply after the company delivered Monday’s financial results, closing up 3.2 per cent at $18.56.