Fortescue Metals Group (FMG) has joined BHP Billiton and Rio Tinto in surprising investors with higher iron ore production and sales for the three months to June and for the 2012-13 financial year.
Fortescue’s data has confirmed that iron ore exports from Australia rose sharply, despite fears that the slowing pace of activity in the Chinese economy, would lead to less ore being sold and falling prices.
Prices held up (and this has continued into July) and all those bears who have been forecasting doom and gloom now for more than a year, are wrong, again.
Fortescue has emerged form its crisis of late 2012 when iron ore prices dipped to $87 a tonne, generating cash flow and revenue pressures at the company and raising fears it might have problems with its banks.
FMG YTD – Fortescue does better, will asset sales happen?
Asset sales (the most important are ‘progressing‘, but so far there’s no finality, according to FMG yesterday), cost cuts and a sharp rebound in ore prices, took the pressure off the company.
Talks were continuing for a sale of a minority stake in the port and rail unit, Fortescue said in today’s statement. The company plans to use cash from a sale to repay debt.The talks have been going on since last December and had been expected to have been concluded months ago.
In fact, the rapid improvement in the company’s financial position means it is increasingly unlikely that Fortescue will sell a share in its port and rail assets, which was the plan in the cash crisis in late 2012.
That’s despite estimates the sale could raise $3 billion. Fortescue’s cash generation is improving, costs are down and so is debt.
Yesterday it reported a 41% jump in shipments in the year to June 30, shipping almost 81 million tonnes of iron ore.
The company lifted shipments 24% in the June quarter to 25 million tonnes (and claimed to have hit an annual rate of 120 million tonnes during June).
Fortescue said it received an average sale price of $US113 a tonne during the June quarter, thanks to continuing demand from China. Costs fell to $US36.10 in the June quarter, down 17%.
‘‘These high levels of steel production, improving steel prices and the current low level of iron ore inventory in the system have resulted in recent iron ore re-stocking,’’ the company said in yesterday’s statement.
Fortescue said it expects to produce and ship between 127 million tonnes and 133 million tonnes of iron ore in the current 2013-14 financial year.
Fortescue said it had reduced production costs through lower strip ratios, costs savings initiatives and operational efficiencies. It is also still trying to get buyers to pre-pay for iron ore, which is helping to ease pressures on its operations by improving cash flows.
