Fortescue Metals Group shares head towards a strong end to the financial year

Higher iron ore prices this year, a campaign of continuing cost cutting and some aggressive debt reduction has seen Fortescue Metals Group shares head towards a strong end to the financial year next week.

The shares hit a two month high yesterday and closed at $3.53, up more than 8% on the day after the iron ore miner revealed the early repayment of another half a billion $US dollars of debt.

The shares are up 74% year to date in 2016, and 49% since June last year.

The repayment will be from debt due in 2019, which Fortescue said should result in interest savings of $US21 million per year.

Stephen Pearce, the company’s CFO, said yesterday in a statement: "Cashflow generation from our operational performance and cost reductions have allowed Fortescue to continue to repay debt. This brings total FY16 debt repayments to US$2.9bn, reducing annual interest expense by US$186 million.”

Mr Pearce said the company remained committed to strengthening its balance sheet. Fortescue has been trying to cut costs amid a slump in the price of iron ore, which hit multi-year lows in December.

Prices for the steel-making ingredient have since recovered, leaving them up by about a quarter so far this year and around $US50 a tonne (where they have been since March, give or take a couple of dollars each way a tonne).

Fortescue’s debt peaked at nearly $US13 billion in 2013, but fell to a gross figure of gross debt of $US9.5 billion at the end of June 2015.

Fortescue said in April said it had trimmed cash costs by more than 40% over the past year.

The rebound in iron ore prices since the lows of earlier this year (the shares hit a low of $1.44 on January 21) has helped Fortescue boost cash generation, enabling it to repay debt earlier than it had to.
 

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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