Peak iron ore for Fortescue Metals Group (FMG)?
Fortescue yesterday forecast little or no growth in iron ore exports over the current financial year, but reckons it can again cut production costs.
The miner told the ASX yesterday in its June quarter and full year production report that it is looking to ship between 165 million and 170 million tonnes in the 2016-17 financial year, compared to the record 169.4 million tonnes it shipped in the year to June.
While that was just above its target for the year of 165 million tonnes, Fortescue exported 43.4 million tonnes in the June quarter, equal to an annual rate of 173.6 million tonnes.
Fortescue said in the report it would produce at a unit cost of between $US12 a tonne and $US13 a tonne over the next year. Fortescue’s unit cost in the June quarter was $US14.31 a tonne, but the miner said it was $US13.10 a tonne in the month of June.
Fortescue’s June figure means it has met its self-imposed target of ending the 2016 financial year with production costs under $US14 a tonne. The market loved that news, bidding the shares up 7% to $4.41 yesterday.
Chief Executive Officer, Nev Power, said “Our June quarter result demonstrates the consistent delivery of outstanding operational performance across all aspects of our business. Costs have been lowered for the tenth consecutive quarter and our continued focus on productivity and efficiency measures will drive C1 costs even lower in FY17.”
“With net debt reduced to US$5.2 billion, we are fast approaching our initial balance sheet targets and will continue to apply cash flows to further reduce debt.”
And after spending little on capital investment over the past two years as it slashed spending at all levels to conserve cash and pay down debt, Fortescue will invest around $200 million on a fleet of tugboats in Port Hedland. Fortescue said; “FY17 capital expenditure on the project is US$90 million with the balance due in FY18. Options to fund this project are also being considered.”
It also let it be known in yesterday’s statement that it will need to replace the Firetail mine within the next five years at a cost of $US1 to $US1.5 billion before 2021. Most of the spending will happen between 2019 and 2021, Fortescue said yesterday.
And construction of eight Very Large Ore Carriers (VLOCs) continues on schedule. “Options are currently being negotiated for the funding of future VLOC payments of $270 million in FY17 and US$180 million in FY18,” the company said yesterday.
The miner has previously taken a small exposure to copper and gol d exploration in New South Wales and South Australia, and it said on Wednesday that it was also exploring in Ecuador. It said it is also exploring for Lithium on its Pilbara tenements.
Fortescue said it held a cash balance of $US1.6 billion at the end of June and had repaid $US2.9 billion of debt during the 2015-16 financial year. Its gross debt is now estimated at $US6.6 billion, Net debt around $5 billion.
