The two sides of the resources boom were clearly on display yesterday in the interim figures from iron ore exporter Fortescue Metals Group and the full year result from copper-gold group OZ Minerals.
In short (and as we saw with BHP Billiton and Rio Tinto a week ago), iron ore is hot and still very profitable, despite a fall in world prices and easing demand.
On the other hand, copper and gold (even though the latter has been very strong) have not been able to produce the same impetus for OZ Minerals.
Fortescue Metals Group, the third largest iron ore miner, yesterday revealed a half year profit of more than $US800 million, but has cut its production guidance for the March quarter due to the impact of Cyclone Heidi in January.
The higher net profit was on a more sedate 15% rise in earnings before interest, tax, depreciation and amortisation to $1.510 billion, from the $1.316 billion in the first half of the 2011 financial year.
The $US801 million net result was more than double the $US314 million achieved in the same period of 2010.
Revenue jumped 33% to $US3.35 billion from $US2.53 billion in the first half of the previous financial year.
Fortescue lifted exports 30% to 27.1 million tonnes shipped in the December half year (20.9 million in the first half of 2011).
But that was short of the guidance for 55 million tonnes to be shipped in the year to June.
As a result of the production downgrade, Fortescue’s guidance for the three months to the end of March has been cut from 13.75 million tonnes (Mt) to a range of 13Mt to 13.5Mt.
While guidance for the full year to June 30, 2012 remains unchanged at 55Mt of iron ore, the company will have to ship more than 14 million tonnes in the June quarter, to be sure of making forecast.
In a blow to the company, its fourth berth at Port Hedland harbour has been delayed by three months, but Fortescue said this would not delay its plans to increase exports to 155 million tonnes by the middle of 2013.
Costs continue to haunt the company, with ”mining costs” almost doubling to just over $US1 billion in the half year. Administration costs fell.
Shareholders will get an interim dividend of 4c to be paid on April 2. That’s up from 3c a share paid for the first half of the 2011 financial year.
Investors didn’t like the result and marked the shares down 8c to $5.53.
OZ Minerals shareholders saw the downside of the resources boom (and the former bust) in the full year results yesterday.
They saw a trading profit that was down on 2010 because of the weak copper price for much of 2011 (and despite a strong gold price for part of the year).
That was why group revenue was flat at $1.1 billion.
And the net profit was down sharply because of the reversal of an earlier asset impairment which boosted net earnings in 2010.
As a result, net profit for 2011 dropped 53% from $586.9 million in the previous year.
The 2011 result also included the litigation settlement expenditure and an impairment of the company’s investment in uranium explorer Toro Energy Limited (the shares lost value after the Fukushima crisis in Japan in March).
Underlying net profit of $322.7 million was down 19% mainly because of higher recognition of restricted tax losses in the prior year.
Shareholders will be paid a final dividend of 30c a share, making 60c for the full year, down from the 70c paid for 2010.
But shareholders aren’t being short-changed.
The company ran a couple of major capital management programs during the year which included a capital return of $1.20 a share, which was completed in June and a $200 million on market buyback of which $99.9 million had been spent.
So a lower dividend for the year was well offset by the capital return (with the bonus of selling into the on market buyback and then buying back into the stock).
Despite the spending on the capital management and dividends and acquisitions, the company remains debt free (with a $200 million credit line untouched) and has more than $880 million in cash.
OZ Minerals chairman Neil Hamilton said in yesterday’s release that despite the uncertainty in the broader economy in 2011 which persists into 2012, the prices for the company’s commodities have remained buoyant.
"This is demonstrative of the strong demand for copper and the continuing constraints on supply – a scenario we anticipate continuing," he said in yesterday’s statement.
"With our strong operational performance at Prominent Hill and its good margins we are able to enjoy the strength of the market and at the same time be prepared for volatility."
OZ shares eased 15c, or over 1% to $11.24.
