Judging by the tone of yesterday’s commentary from Fortescue Metals (FMG) and senior management, the company reckons it will be able to avoid being forced to write down the value of its WA iron ore mining and export assets.
“Fortescue has undertaken an impairment review at 31 December 2014 which confirmed recoverability of all of its assets at or above the underlying book values. The review remains subject to finalisation of the half year financial statements,” the company said in yesterday’s report to the ASX.
In fact you get the feeling that Fortescue’s management feels that while wounded financially by the slide in iron ore prices, the company will ride out the disruptions being wrought by the long plunge in prices.
The company has already announced the slashing of investment by half this year – saving $US650 million this year, and although it has $US7.5 billion of debt, it doesn’t have a repayment due until 2017, and managed to pay down debt by half a billion dollars in 2014.
Taking all this into account it’s no wonder Fortescue’s share price managed a near 10% rise to $2.24 yesterday, well above the multi-year low of $1.92 hit on earlier in the week after the 4.1% plunge in spot iron ore prices.
FMG 1Y – Fortescue battles on, still profitable
Fortescue indicated yesterday that it was still profitable despite depressed iron ore prices, thanks to falling costs, the weaker Australian dollar and falling oil prices which is translating into lower diesel prices.
Fortescue said its cost of production in the December quarter was 11% below the September quarter, and amounted to $US41 per wet metric tonne once the cost of shipping, administration and royalties were taken into account.
The lower dollar and diesel prices and other cost cuts have allowed Fortescue to cut its cost guidance for the full year by 9% while maintaining its full year production and shipping guidance.
Analysts have estimated in recent months that Fortescue would "break-even" at an iron ore price of about $US59 per tonne.
The miner said it received about $US63 per tonne for its product in the December quarter, and with analysts claiming the company has a break even point about $US59 a tonne, the business seems to be profitable (marginally) at current prices.
Fortescue shipped 41.1 million tonnes during the December quarter, which was steady on the September quarter (but up 47% on the December 2013 quarter). A total of 72 ships were despatched in the quarter with the company reporting solid demand for its iron ore products.
