Fortescue to target record iron ore output, strengthen China ties
FMG expects to ship up to 175m tonnes of iron ore this year as it strengthens its China ties.
Andrew Forrest’s Fortescue Metals Group will target record output this year and has moved to further strengthen its ties with China as it continues to revel in robust iron ore prices.
The company (FMG) this morning announced record quarterly shipments of 46.6 million tonnes of iron ore, helping it make up for some output it lost to wet weather earlier this year, and taking total shipments for the year to 167.7 million tonnes.
That was down slightly from the 170m tonnes it shipped in the 2018 financial year. But it said it expected to ship between 170m and 175m tonnes this year, which if achieved would be a new annual record for the miner.
Production costs are expected to creep higher this year, from $US12.78 a tonne in the June quarter to between $US13.25 and $US13.75 a tonne, due to general inflation across the industry.
The increased shipments in recent months helped Fortescue cash in on the healthy iron ore price. The benchmark iron ore price has surged from less than $US60 a tonne a year ago to around $US115 a tonne today, helped along by Brumadinho tailings dam disaster that has knocked out a large chunk of Brazil’s iron ore industry.
The discount Fortescue receives for its lower grade iron ore has also narrowed markedly at the same time as prices have risen. The miner is now collecting around 87 per cent of the benchmark price, up from around 60 per cent at times last year.
Fortescue revealed this morning that it had established a wholly-owned sales entity in China that would allow the company to sell smaller volumes to customers in Renminbi rather than US dollars. Fortescue expects the additional flexibility will help it broaden its customer base.
The strong iron ore prices of the past few months helped lift Fortescue’s cash on hand from $US1.1 billion at the end of March to $US1.9bn by the end of June, even after the company spend $US314m on sustaining capital, exploration and development.
The company was tight-lipped about what to expect when it announces its latest dividend this month, repeating only that it had a policy of paying out between 50 per cent and 80 per cent of net profit after tax.
Macquarie analyst Hayden Bairstow said the latest production figures were ahead of his estimates, with the realised prices achieved during the period the key positive.
“Fortescue’s June quarter result was strong with better realised prices driving a strong beat in cash flow generation,” he said.
“Guidance for FY20 was, on the margin, slightly better than we had expected.”
Fortescue shares have more than doubled in the past six months, but have softened in recent days amid signs that the iron ore market may have peaked.
The stock was down more than 6 per cent this afternoon to $8.20. Fellow iron ore heavyweights Rio Tinto (down 4.4 per cent) and BHP (down 2.2 per cent) were also noticeably weaker.
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