Bad weather may have hurt Fortescue’s (FMG) prospects for better than forecast shipments of iron ore in the year to June, but yesterday the company had to ride out a small storm on the market when the nervous nellies took fright at the news and briefly sold down the shares.
Specifically the nervous investors (most of whom are day traders) saw Fortescue warn that full year iron ore shipments will be at the lower end of previous guidance – or around 127 million tonnes, against the top end estimate of 133 million tonnes.
So down went the shares in yesterday’s weak market – they touched a day’s low of $5.01 after closing at $5.30 on Wednesday. They later recovered when cooler headed investors realised the world hadn’t fallen in – again.
The shares ended down 1.3% at $5.23, a longway from those dramatic "plunge" headlines online during the day.
FMG 1Y – Fortescue weathers two storms as cost cuts and production rises to boost earnings
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The iron ore miner had originally promised to export between 127 million and 133 million tonnes in the 2014 financial year, but yesterday it predicted that it would export precisely 127 million tonnes.
Fortescue blamed the change was the result of "significant weather related production impacts in January 2014", which appears to be a reference to severe cyclone bad weather, heavy rain and flooding activity over the Christmas and New Year period in the Pilbara.
Rival Pilbara miner Rio Tinto (RIO) also blamed the cyclones and storms during that period for hampering its iron ore exports, when it reported to the market earlier this month, but BHP Billiton (BHP) didn’t give them any thought when it reported last week.
Fortescue’s exports in the December quarter were slightly lower than analysts had expected, with the company shipping 28 million tonnes. But that was up on the 25.9 million tonnes in the three months to September.
For the December half, total shipments jumped 51% to 54 million tonnes.
Encouragingly, Fortescue said it remains on track to achieve a sustainable production rate of 155 million tonnes per year by the end of the current (March) quarter.
Costs remained reasonably steady at around $33 a tonne, and Fortescue has revised down its full year costs guidance to $34 a tonne to reflect the fall in the value of the Australian dollar.
Fortescue also said it had made debt repayments of $US3.1 billion since November.
Like Beach Energy’s report yesterday, the gold is in the details – for example Fortescue lifted shipments 92% million from 19.1 million tonnes in the December quarter of 2012 to 26.7 million tonnes in the quarter ending December 31, 2013. The average cost per tonne plunged from more than $US50 a tonne to $US33 a tonne.
The company said it received an average price of $US125 a tonne for its iron ore during the three months to December, which it said was indicative of continuing strong demand from Asian steelmakers. But that was down from the $US135 a tonne for the December 2012 quarter.
The average price for the six months to December was $US124 a tonne, down $US10 a tonne. The 51% rise in total shipments will more than offset the lower average iron ore price in the half year. And that’s the real takeaway from the report that the nervous nellies ignored.
