Fortescue ups dividend on record profits, flags blowout delays at Iron Bridge
Fortescue dividend almost doubles as iron ore prices help deliver a $US4.1bn profit, but its Iron Bridge project is a headache.
Fortescue Metals Group has confirmed a $US400m ($516m) blowout and a major rethink at its Iron Bridge magnetite project as the iron ore major announced a record half-year profit and dividends worth $1.65bn to chairman Andrew Forrest.
Fortescue almost doubled the size of its interim dividend on the back of the strong iron ore price, declaring a $1.47 a share half-year payout on the back of a $US4.1bn net profit for the period as the company gave details on the extent of its problems at its Iron Bridge magnetite project.
Fortescue also flagged a $US400m blowout in the likely cost of its Iron Bridge magnetite project in the Pilbara, along with a delay of up to six months in delivering first production at the 22 million tonne a year mine and processing plant, now due by the end of 2022.
Fortescue now tips a “preliminary total investment” of $US3bn to bring Iron Bridge into production, saying it was limiting ongoing work at Iron Bridge for three months while it conducted further technical studies on the giant operation.
On Tuesday Fortescue said chief operating officer Greg Lilleyman has left the company on the back of revelations about the blowout at the company’s Iron Bridge magnetite project, joining director of projects Don Hyma and the Iron Bridge project manager in exiting the miner.
Chief executive Elizabeth Gaines said on Thursday that Mr Lilleyman’s resignation was not prompted any poor behaviour of his own, but the veteran operator had fallen on his sword because he failed to spot and correct failings of the team beneath him.
“What he did was miss the fact that the Iron Bridge project had suffered a breakdown in team culture, and in turn this resulted in poor communication at the senior leadership level and a lack of empowerment across the organisation,” she said.
“News wasn’t being shared and that meant that challenges weren’t being address in a timely way.”
Ms Gaines and chief financial officer Ian Wells will also lose their annual bonuses for the year over the blowout, in a year in which Fortescue is expected to deliver record profits.
The joint venture with Taiwan’s Formosa Plastics – which includes China’s Baowu as a minority partner – has already spent $US1.1bn on work towards building the full scale mine and processing plant.
Fortescue said on Thursday the 12-week “technical and commercial assessment” would focus on its previous plans to build a 135km pipeline to pump magnetite concentrate to Port Hedland, and examine “enhanced utilisation of Fortescue’s port and rail infrastructure”.
The mining giant said it would also examine contracts already handed out for work at Iron Bridge, with the review to also focus on “contractor strategy and selection”.
Ms Gaines told The Australian Fortescue had not yet abandoned the idea of transporting the magnetite concentrate to Port Hedland through a pipeline, but said the cost and timeline of the pipeline would be tested against transporting Iron Bridge product to the port on its existing rail lines.
“The ($US3bn estimate) includes a transport solution for the magnetite concentrate with further work to be undertaken as to what that is, knowing that it has to achieve a certain capital estimate,” she said.
“And there are a couple of contracts about to be awarded about pipeline installation – and we’ve spoken about contractor selection, and this gives us an opportunity to do a further assessment because we are seeing pressure on those costs particularly around labour and specialist skills.”
“And part of this is also around the schedule, and protecting the schedule, because the schedule equals money.”
Port Hedland has only one berth capable of importing heavy equipment and construction modules, and Ms Gaines said the bottlenecks at the port were also playing a role in delays at Iron Bridge, with Fortescue considering building an offload facility of its own in Port Hedland as it did during the boom years amid the massive expansion of Pilbara infrastructure.
Fortescue said it had promoted the manager of its Solomon operations, Derek Brown, to act in Mr Hyma’s former role as director of its projects, and has rejigged the team beneath him to include executives that helped deliver the company’s Eliwana mine and rail projects.
Fortescue revenue jumped 44 per cent to $US9.34bn in the six months to the end of December, with underlying earnings before interest, tax, depreciation and amortisation of $US6.64bn, up from $US4.23bn for the first half of the previous financial year.
Its dividend represents 80 per cent of net profit after the tax, the top end of its declared payout ratio, and delivered another $1.65bn paycheck to Dr Forrest.
The company had previously flagged after-tax profits of about $US4bn for the first half of the financial year, and said it shipped a record 90.7 million tonnes of ore in the last six months of 2020, after December quarter shipments of 46.4 million tonnes.
Fortescue finished the year with $US4bn in cash, down from $US5.1bn at the end of September, after paying out $US2.2bn in dividends, $US872m in taxes and $US1bn in capital spending, leaving the company with net debt of $US100m.
The miner lifted cost guidance to $US13.50 to $US14 a tonne for the full year, from earlier estimates of $US13 to $US13.50 a tonne, citing the strong Australian dollar for the lift. Its ore shipped for an average $US12.78 a tonne in the first half of the financial year.
Fortescue shares closed up 47c, or 2 per cent on Thursday, at $24.88.
