Fortescue Metals earnings results

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21 February 2019

Results (US$m)

Half Year 2019

Half Year 2018

Change

Revenue 

3,540.0

3,679.0

-4%

C1 Costs (US$/wet metric tonne)

13.11

12.11

+8%

Underlying EBITDA 

1,633.0

1,828.0

-11%

Bloomberg Consensus

1,536.0

 

 

Net Profit after Tax (NPAT) 

644.0

681.0

-5%

Net Debt 

3,036.0

3,112.0

-2.4%

Dividends ($)

0.30

0.11

+172.7%

Fortescue Metals (FMG) shares surge on better earnings and bigger dividend

 

Results

  • Fortescue Metals (FMG) – the world’s fourth largest iron ore miner – posted a better than expected 11% fall in half year underlying earnings to $1,633m. 

Drivers

  •  The result was supported by a resilient and higher than expected iron ore price which helped offset a slight lift in costs and lower shipments of the metal. Average realised iron ore prices were steady at US$47/t (vs 1H18) and up 18% on the 2H18. 
  • Margins were below those of its larger peers Rio Tinto, BHP and Brazil’s Vale due to the production of lower-grade ore which fetches a cheaper price on the market. The recent reduction in steel mill margins however has helped boost demand for the lower grade iron ore which FMG produces.
  • FMG continues to gradually improve its debt position, reducing loans by more than US$3bn in three years as iron ore prices have generally come off the boil from the highs near US$120/t hit back in 2014.

Dividend

  • FMG has close to tripled its total dividend payments for the half which was a feature of this result and perhaps behind the surging share price. It declared a $0.19 per share fully franked interim dividend and a $0.11 fully franked special dividend. Both are set to be paid to eligible shareholders on 22 March and will trade ex-dividend on 28 February. FMG founder and chairman Andrew Forrest owns 35% of the miner and is expected to receive more than $320m from the dividend payments. 

Outlook

  • Looking ahead, FMG expects to ship 165-173mt of iron ore over the year with second half shipments expected to be greater than the first. It anticipates the lift in production to help push costs lower. C1 costs (costs associated with mining and processing) are expected to ease towards the upper end of the US$12-$13 per wet metric tonne range for the year. 
  • Iron ore prices have surged by close to 20% in the past three weeks following a mining accident in Brazil, creating temporary supply concerns which could boost earnings over the second half. China’s steel demand and policy action will be key moving forward due to FMG’s reliance on the economy’s growth.

Share price

  • FMG shares surged by more than 5% in response to the result, hitting a two-year high in the process. Investors seemed to react to the better profit result and its supercharged dividend payment due in March. FMG shares have surged by more than 50% Year-to-Date due to the supply concerns in Brazil. 

Tags:

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