Fortescue Full-Year Earnings Rise 56% on Higher Ore Output

Aug 20, 2014 3:13 am ET

(Updates to add CEO comment in third paragraph.)

Aug. 20 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third-biggest iron ore producer, said prices are poised for gains as it reported full-year profit increased 56 percent to a record on higher output.

Net income was $2.73 billion in the 12 months ended June 30, from $1.75 billion a year earlier, the Perth-based producer said today in a statement. That was in line with an average of 14 analyst estimates compiled by Bloomberg of $2.8 billion. Fortescue received an average of $106 a dry metric ton for its ore in the year through June, it said.

“We are very comfortable at these prices, but we do expect to see prices drifting up as the higher cost production exits the market,” Chief Executive Officer Nev Power said today in an interview with Rishaad Salamat on Bloomberg Television’s “Asia Edge”.

Iron ore, which has declined 31 percent this year, may trade at around $100 a ton as about 125 million tons of higher cost global supply is displaced through December, according to Rio Tinto Group. Prices probably won’t rise above $100 a ton, BHP Billiton Ltd. CEO Andrew Mackenzie said yesterday.

’Most Optimistic’

Fortescue fell 1.5 percent to close at A$4.55 in Sydney trading.

“They are still one of the most optimistic players out there in terms of the iron ore price,” Evan Lucas, a markets strategist in Melbourne at IG Ltd. said by phone.

Ore with 62 percent iron content delivered to China’s port of Qingdao fell 0.3 percent Tuesday to $93.03 a ton. It touched $89.48 on June 16, the lowest since September 2012.

Fortescue has repaid $3.6 billion of borrowings since November 2013 and will repay an additional $500 million to $1 billion in the year through June 2015, it said. Net debt dropped to $7.2 billion at June 30 from $10.5 billion a year earlier, according to the statement. The producer is committed to additional repayments of as much as $2.5 billion by mid-2016, Power told reporters today on a conference call.

Increased Shipments

Options to improve the company’s credit metrics and to strengthen its balance sheet are being assessed, Chief Financial Officer Stephen Pearce said in the statement today.

“This includes further repayments and re-financing well in advance of maturities,” he said.

The company is rated Ba1 at Moody’s Investors Service, one step below investment grade, having been raised a level in January. It had its credit score lifted in November by Standard & Poor’s to BB, the second-highest junk rating.

Shipments in the 12 months through June 2015 are forecast to be between 155 million metric tons to 160 million metric tons, the producer said in the statement.

Costs including shipping, administration and royalties were $56 a dry ton in the year through June, Fortescue said in the statement. About 80 percent of China’s mines have operating costs at around $80 to $90 a ton, according to Shanghai-based consulting firm Mysteel.com.

--With assistance from Rishaad Salamat in London.