Another weak performance by Fortescue Metals Group in the six months to December 31, with shipments of 82.7 million tonnes the lowest for at least four years.
The company – which is the world’s 4th biggest exporter reported a 5% rise in its second-quarter iron-ore shipments as its new higher-grade ore helped lift output.
The world’s fourth-largest iron ore producer said it shipped 42.5 million tonnes of ore in the three months to December 31, compared with 40.5 million tonnes a year earlier and 40.2 million tonnes in the September quarter.
For the six months to December, Fortescue shipped 80.7 million tonnes of ore, down on the 84.5 million tonnes shipped in the December 2017 half, the 86.1 million shipped in the half year to December 31, 2016, and the 84 million tonnes exported in the six months ending December 31, 2015.
But investors won’t worry about that – all they can focus on at the moment is the possible positive impact on Australian iron ore exporters such as Fortescue, BHP, and Rio from the second dam disaster at a Brazilian iron ore mine owned by their biggest rival, Vale.
Investors sent the shares up another 4% yesterday to $5.64. They are now up 17% from last Friday when they closed at $4.80.
The disaster which has seen close to 400 people dead or missing (and most being vale employees) has already seen the iron ore giant commit to replacing 10 of 17 similar dams among its 151 mines in Brazil.
Vale’s CEO Fabio Schvartsman said on Tuesday the operations in question produced 40 million tonnes of iron ore a year.
“We decided the company should, once and for all, do what it takes to remove any doubt about the safety of Vale’s dams,” Mr. Schvartsman said in Brasilia.
That 40 million tonne is equal to the quarterly exports from Fortescue Metals mines in WA’s Pilbara. It is about 4% of China’s total iron ore imports of more than 900 million tonnes a year.
That’s why iron ore prices leapt past $US82 a tonne on Wednesday and the share prices of Fortescue, BHP and Rio are up by between 8% and 13% since last Friday, the day before the dam disaster happened. iron ore prices are up 22% since the current rebound started on November 26.
Fortescue said yesterday the average price during the quarter rose 7% to US$48a dry metric tonne compared to the prior quarter. This represents a 67% realisation of the average Platts 62 CFR Index price (68% a year ago). Since the end of December, the spread in price between high and lower iron content ores has narrowed significantly
The company said its C1 costs were lower than the prior quarter at US$13.02/ went metric tonne, “due primarily to a reduction in overburden removal, a lower exchange rate and the continued focus on productivity and efficiency. These improvements were partially offset by unscheduled downtime as a result of bushfires caused by lightning strikes at the Solomon Hub in mid-December 2018.”
That, however, was higher than the $US12.08 a tonne figure given for the same quarter in 2017-18 in the December quarter statement a year ago. “Cash production costs (C1) were lowered to a record US$12.08 per wet metric tonne (wmt),” the December 2017 quarter’s report revealed.
Fortescue Chief Executive Officer, Elizabeth Gaines, said in a prepared statement yesterday “The Fortescue team have delivered a strong December quarter with shipments of 42.5mt bringing the total for the first half of FY19 to 82.7mt. Our average realised price increased by seven per cent in the quarter to US$48/dmt which combined with lower C1 costs of US$13.02/wmt generated strong cashflows.”
“During the quarter we delivered significant shareholder returns through payment of the FY18 final dividend of US$270 million and the acquisition of US$101 million of shares on market while maintaining our quarter end cash balance at US$962 million.”
“The first cargo of our 60.1% iron grade West Pilbara Fines product was shipped to China on 16 December 2018 and we now expect to deliver between 8-10mt of this product in FY19. Initial customer feedback has been excellent and we look forward to supplying 40mpta of West Pilbara Fines from December 2020, once the Eliwana mine and rail development project has commenced operations.”
“We are pleased with the execution of Fortescue’s share buy-back program after acquiring 34.8 million shares at an average price of A$3.997 per share during the quarter. Maintaining our disciplined approach to capital management together with maximising shareholder returns remains our key focus.”
Her statement made no mention of the impact on iron ore prices or Fortescue from the latest dam disaster at Vale.
