Shares in Fortescue Metals jumped by around 4% yesterday at one stage yesterday after the company shrugged off fears of a negative impact from the COVID-19 pandemic and upgraded its 2019-20 sales forecast.
They closed at $11.96 on Thursday, up 1.8%, thanks to growing criticism of chair Andrew Forrest over his controversial press conference with Health Minister Greg Hunt and a senior Chinese diplomat which appeared uninvited (by Mr. Hunt) at a press conference in Melbourne on Wednesday afternoon
Still, FMG shares jumped19.7% in April and are up nearly 12% through the first four months of 2020.
In fact, the COVID-19 crisis has had no impact on the Australian iron ore market (March quarter reports from Rio and BHP confirm that with high levels of sales).
Iron ore supply is being crimped for the second year in a row by supply shortfalls from Vale in Brazil, by closures of the Indian and South African iron ore sectors because of the virus and by supply problems at Rio’s mines caused by cyclones (for a second year in a row).
So strong is demand that on Thursday in its third-quarter report, Fortescue said it was lifting its guidance for full-year shipments 175-177 million tonnes from 170-175 million tonnes.
Most of the extra tonnes will held for the China because of the supply constraints.
At around $US80 a tonne average, that could be around $US350 million extra for Fortescue in higher revenues.
The March quarter saw record iron ore shipments of 42.3 million tonnes up 10% on the third quarter of 2018-19 and year-to-date shipments were a record 130.9 million tonnes.
Being tied so closely to China has seen a major improvement in Fortescue’s fortunes – cash on hand totalled $US4.2 billion at March 31 this year against a net debt of $US2.9 billion a year ago.
That’s a turnaround of more than $US7 billion for the company after paying Forrest and other shareholders record dividends.
Another solid dividend looks in store for shareholders, led by Forrest who now pwns 36.1% after spending $243 million to buy extra shares in February’s price dip.
Fortescue CEO, Elizabeth Gaines unwittingly summed up Fortescue’s need to keep in China’s good books when she said in the quarterly report on Thursday.
“Fortescue is a core supplier of iron ore to China and we see strong ongoing demand for our products and anticipate a steady recovery in economic activity in that market. While the global economic outlook remains uncertain, our balance sheet has never been stronger and we continue to generate sustained cashflows and jobs, invest in growth and focus on delivering returns to our shareholders.”
But the main driver of the surge in the company’s profits and cash and Forrest’s fortune has also been driven by the impact of the January 25, 2019 mine dam wall disaster at a mine owned by Vale of Brazil.
That cut more than 90 million tonnes in sales from the company’s mines and other shortfalls put the market into short supply and saw prices surge to a seven-year plus high of more than $US125 a tonne last July.
The price averaged more than $US80 a tonne for all of last year. But it was the continuing high level of demand from China which kept prices high as supplies contracted from brazil and Australia (BHP also had quality problems as well).
