A big tick from investors for Fortescue Metals Group’s record annual profit and dividends, but the way iron ore prices are going the chances of that being repeated this year looks very remote without another sudden explosion in prices.
Investors pushed the shares up more than 6% to $21.32 – as much to do with the solid rise in iron ore prices late last week than the very much forecast figures from the miner for the year to June 30.
The price of the 58% Fe fines product that is still Fortescue’s main commodity traded at $US126.50 a tonne on Friday while the price of 62% Fe fines (close to the 61% Fe product Fortescue is pushing to produce and export) traded at $US157 a tonne.
The company’s average price for the year to June was $US135 a tonne after averaging $US110 a tone for the six months to December. At current prices Fortescue’s profit should be around the $US4 billion it earned for the six months.
But a repeat of the $US10.3 billion full year result for June 30, 2022 is very unlikely unless world prices hit record levels of last May when the price of 62% Fe fines peaked at $US237 a tonne.
Fortescue had revenue of $US22.3 billion (just over $A30 billion) in the year to June which was 74% higher than the previous year.
As a result, the company will pay a record final and full year dividend totalling $A11 billion.
Major shareholder, Andrew Forrest, the company’s founder and chair will get 36% of the record dividend or $3.96 billion.
The company reported underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $US16.4 billion ($A22.4 billion), 96% higher than 2019-20 with the Underlying EBITDA margin increasing to 73% (higher than the banks).
The company will pay a fully franked final dividend of $A2.11 per share, increasing total dividends declared in FY21 to an all time record of $A3.58 per share.
But company revealed that top executives will receive just 28% of what they could have gained in a long-term incentive plan.
It cited community expectations around executive pay and noted its results were in part due to robust market pricing that was outside the control of management.
The steep cut in expected bonus payments will impact around 30 senior executives.
For some executives it comes on top of cuts to a separate bonus scheme after a cost blowout and delays at Fortescue’s Iron Bridge magnetite project during the year.
It ended June with a net cash balance of $US2.7 billion, versus net debt of $US258 million a year ago.
The company has, however, been grappling with rising costs linked in part to materials inflation and a strong labor market.
Full-year C1 costs – which don’t include expenses such as royalties, shipping and overheads – were up 8.0% at $1US3.93 a ton. The miner forecast costs of between $US15.00 and $US15.50 a ton in its current year.
The company is also said it expects to spend up to $600 million in 2021-22 on Fortescue Future Industries, which is developing green energy projects around the world.
The unit signed a memorandum of understanding with the government of Afghanistan last year to conduct studies for the development of hydropower and geothermal projects as well on mineral resources.
Asked if what would happen now that the Taliban had seized power, Forrest told a briefing that Fortescue “would meaningfully engage with anybody including the Taliban” if they met four conditions laid out in the company’s contracts.
The conditions are equal education outcomes for girls and boys, the abolishment of all forms of forced slavery, child marriage and modern slavery, which is often defined as severe exploitation of people for personal or commercial gain, Reuters reported.
