Fortescue to develop Queens Valley iron ore mining area
Spending $417m to develop Queens Valley won’t hurt Fortescue’s ability to unveil a new dividend surprise.
The decision by Fortescue Metals Group to spend $US287 million ($417m) developing a new iron ore mine in the Pilbara is unlikely to impact its ability to offer another dividend surprise later this year.
The company announced that it would develop the Queens Valley mine, which will help it maintain the supply of low-alumina iron ore fines currently coming out of its Kings mine.
The mine’s comparatively low capital cost reflects its proximity to key infrastructure already in place at Kings.
It is the third new project approved by Fortescue recently, following investment decisions on both the Eliwana and Iron Bridge projects.
“Fortescue’s integrated operations and marketing strategy defines a product portfolio that maximises value from the Fortescue orebodies over the long term, ensuring the continued delivery of returns to shareholders,” Fortescue chief executive Elizabeth Gaines said in a statement.
“The Queens mining area development will maintain our highly valued Kings Fines low-alumina sinter fines product which supplies Fortescue’s key customers in China as well as in Japan and Korea.”
With iron ore prices currently enjoying their highest levels in years, the additional spend by Fortescue should be easily covered from its cash flow.
RBC Capital Markets analyst Paul Hissey said that at current iron ore prices, Fortescue could generate an additional $US800m in cash on top of his base case estimates in just the June quarter.
“This alone could fund the development of Queens, as well as providing potential for an additional dividend top-up at the FY19 results in August,” Mr Hissey said.
Fortescue earlier this month surprised the market when it announced an out-of-cycle 60c per share dividend.