Surging iron ore prices because of supply disruptions in Brazil have helped Australian mining company Fortescue to record full-year profits and dividends.
The firm’s net profit after tax jumped 263 per cent to $3.2bn in the 12 months to the end of June 2019, enabling it to pay a dividend of A$1.14 ($0.77) for the full year. The bumper results reflect a rise in the average price customers paid for Fortescue’s product to $65 a tonne, compared with $44 a tonne a year earlier. That was also driven by a shift to selling some higher-grade ore.
However, the result comes amid signs of a major shift in the iron ore market, with prices falling by almost a third to $83 per tonne in August, according to S&P Global Platts.
Elizabeth Gaines, Fortescue chief executive, said the company had enjoyed a strong start to 2020 and downplayed fears the current market jitters would lead to a pronounced downturn.
“At Fortescue, we don’t subscribe to the ‘boom/bust’ theory, as that assumes that after every so-called boom there will inevitably be a bust.
“Fortescue has never been in a stronger position to continue to optimise margins and cash flows, underpinning our resilience in our earnings through all market cycles.”
Despite the strong results, which beat analysts’ consensus forecasts, shares in Fortescue slipped 5% to A$7.17 on the Australian stock market, weighed down by investor concerns over the US-China trade war.
Ms Gaines told reporters steel production would rise in the 2020 financial year but acknowledged geopolitical tensions were causing volatility.
“There is no doubt that periods of protracted trade tensions are not conducive to global growth.”
Fortescue forecast that it would ship 170 to 175m tonnes of iron ore in full-year 2020, up slightly on the 167.7m tonnes shipped in 2019. Capital expenditure is forecast to more than double to $2.4bn in 2020, as the miner pushes ahead with plans to develop a mine and rail project in Western Australia.
Moody’s Investors Service said the boost in earnings and cash flows was a credit positive for Fortescue and praised the miner’s recent shift towards selling higher-grade iron ore products that attracted higher prices.
“Its strong performance was underpinned by a significant rise in price realisation, which largely reflected supply disruptions in the iron ore market, as well as a shift in Fortescue’s product mix,” said Matthew Moore, vice-president at Moody’s.
“We view the move towards higher-grade production over time as credit positive, because it provides product diversification and should lead to higher price realisations and margins in the long term.”
Fortescue also said it would ship 17 to 20m tonnes of its higher-grade West Pilbara Fines iron ore product.
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