Fortescue Metals Group will challenge Rio Tinto and BHP Billiton for the title of the world’s lowest-cost iron ore producer, with deep cost-cutting by the Andrew Forrest-led miner all but offsetting the slump in iron ore prices.
Perth-based Fortescue this morning announced that net profit had fallen by just 4 per cent to $US319 million ($442.4m), despite a 33 per cent drop in revenue on the back of weaker iron ore prices.
The result compared to a profit of $US331m the same period a year earlier.
However, the financial result was overshadowed by the news that the miner now expects its mining costs — excluding extra charges such as shipping, royalties, administration, interest, sustaining capex and ore quality discounts — to fall to just $US13 a tonne by the end of this financial year. Fortescue’s mining costs have dropped from $US48 a tonne in 2012 to $US16.34 in the last half due to cost-cutting, increased output and an overhaul of mining and processing methods at its Pilbara operations.
It said the benchmark iron ore price needed for it to break even had fallen to $US28.80 a tonne, down from its previous guidance of $US36 a tonne.
The miner also announced a higher than expected interim dividend of 3c per share.
Macquarie analyst Hayden Bairstow said Fortescue’s continued inroads into its production costs had exceeded expectations.
“The cost gains combined with solid iron-ore prices should see Fortescue generate significant cash flow over the next 6-12 months, driving a material reduction in group debt,” Mr Bairstow said.
“We believe Fortescue has the potential to become the lowest cost iron-ore producer in Western Australia on a C1 basis.”
The cash flow out of Fortescue is expected to lead to more debt repayments over the coming months. The company’s net debt has fallen to $US6.1 billion after $US1.1bn in debt reductions in recent months, and chief financial officer Stephen Pearce said the miner remained well placed to continue reducing debt.
Iron ore fell to a decade low in December as rising supplies of ore, from new and expanded mines, outpaced demand from places such as China, where the economy has slowed to its weakest in a quarter century.
Source: The Australian