Iron ore miner Fortescue Metals Group has reported a sharp fall in first-half net profit despite an increase in revenue.
The company’s net profit for the six months to December 31 was $US43 million ($48.24 million), down 94% from $US760 million in the previous corresponding period.
The company explained that the huge fall was driven by a change in valuation of a financing mechanism with a big New York investor.
"It is important to note the impact of the accounting treatment of the Leucadia Note and foreign exchange adjustments.
"These are non-trading items that have a significant influence on reported net profit. By reference, within the HY2010 result the increase in the fair value of the Leucadia Loan Note created a negative adjustment of US$55m to the net profit of US$43m.
"In comparison, a downwards revision to the value of the Leucadia Note made a positive contribution of US$1,411m to the HY2009 net profit result of US$760m.
"The review of the Leucadia Note value is an accounting requirement at each reporting date to reflect the net present value of expected future payments due to Leucadia under its Subordinated Note (refer Note 9 of the accounts).
"Adjustments are made to reflect changed expectations of key production variables such as iron ore prices and shipped volumes.
"The increase to the value of the Leucadia Note in this reporting period, which created a negative adjustment to net profit, reflects an increase in the forecast iron ore price expected for 2010/11," directors explained.
Revenue was $US1.189 billion, up from $US1.015 billion.
Directors said: "Total revenue from iron ore sales was up 15% from the corresponding period last year with 18.6 million tonnes shipped compared to 13.2 million tonnes.
"The average price received per dry metric tonne decreased from US$71.65 for the six months ended 31 December 2008 to US$57.22 for the six months ending 31 December 2009.
"This resulted in a reduction in gross profit to 20% compared with 41% last year.
"Fortescue retained a healthy cash position of US$706 million as at the end of the half."
Earnings before interest, tax, depreciation and amortisation was $US426 million, down from $US479 million for the six months to December 2008.
Total liabilities rose to $US3.71 billion from $US3.55 billion.
Fortescue shares closed down 7c at $4.89.
NSW-based Centennial Coal says it posted a 27% fall in first half net profit, but expects a second half improvement as it continues to see strengthening demand for its thermal coal.
The result for the six months to December 31, 2009 was $31.1 million compared to $42.7 million in the prior first half.
A fall in contract prices helped push revenue down 13% to $381.9 million in the December half, compared to $439.2 million in the same half of 2008-09.
The company declared an interim dividend of 4c a share for the half, down from the 7c a share in the corresponding first half year period of 2008-09.
The shares ended up 3c at $3.82 on Friday.
Centennial says it returned a normalised net profit from operations of $24.2 million for the first half of the 2010 financial year compared to a normalised net profit after tax of $50.7 million for the first half of the 2009 financial year.
"The reported profit of $31.1 million is derived after taking into account an unrealised foreign exchange hedge accounting gain of $9.9 million ($6.9 million after tax), which has been treated as a significant item in this report," the company said in Friday’s statement to the ASX.
Centennial said that the first half saw its share of run of mine production from its various mines of 7.4 million tonnes, "with sales of 7.0 million tonnes, including 2.2 million tonnes of exports – an 18% increase in export volumes, compared to the prior corresponding period, as the Group continues to deliver into its strategic objective of increasing its proportion of export sales".
It said thermal coal shipments were planned to lift in the second half of the financial year.
"Centennial continues to experience strong demand for its thermal coal, particularly as the market has continued to tighten," the company said.
"Recent thermal coal contract settlements for calendar 2010 have been reported at $US85 per tonne, above last year’s Japanese benchmark price of US$70.50 per tonne," it said.
"This year’s Japanese benchmark price, effective from 1 April 2010, has yet to be settled with negotiations with producers at an early stage."
Centennial said recent spot thermal prices were around $US95 per tonne.
Coking coal, used mainly in steel production, also was looking at significant price rises, the company said.
"Asian steel production, particularly in China, has increased significantly and has led a strong price recovery for raw materials, such as iron ore and coking coal," Centennial said.
"With continuing tightening evident, partly as a result of poor weather in Queensland recently, market commentators are forecasting the benchmark coking coal price to increase by more than 40 per cent above the 2009 benchmark price of $US129 per tonne."
It said it was looking to lift exports to 2.6 million to 2.8 million tonnes in the second half, up fro
