The good news from the iron ore sector continued yesterday with Fortescue Metals Group (FMG) revealing a solid rise in production and exports in the three months to June, and an end to mooted asset sales, thanks to a surge of cash in the bank.
The company, number 3 behind Rio and BHP Billiton , says it is on track to meet full year guidance for production, exports, costs and capex.
The miner shipped 25.9 million tonnes during the September quarter, with just 1.2 million tonnes of that belonging to joint venture partner BC Iron.
That was 4% up on the June quarter and means Fortescue says it is on track to export between 127 million and 133 million tonnes of iron ore in the year ending June 30, 2014.
More importantly the shipments in the September quarter were 60% higher than in the same quarter of 2012 when production, exports and prices slumped after Chinese steel mills cut back on purchases, sparking a crisis for the company as its share price plunged and doubts emerged as to its viability.
Despite that, the report disappointed investors who claimed it fell short of forecasts.
The shares fell 2.9%, or 16c to $5.24, having had a strong rise in the past couple of months (they were under $3 in June of this year), especially this week with the positive quarterly report from Rio Tinto and news of solid steel production in China.
FMG Vs RIO Vs BHP YTD – FMG defies iron ore, china bears
The surge in demand this year and the recovery in prices, plus significant cost cuts, have helped stabilise Fortescue and has seen it call off an asset sale process that was aimed at raising several billion dollars.
With $2.8 billion of cash on hand, the company reckons it no longer needs to sell assets. And costs fell 8% in the quarter.
In fact Chinese steel mills imported a record 74.8 million tonnes of iron ore in September and more than 214 million tonnes in the third quarter.
The average price for Fortescue was $US121 a tonne, up from $US113 a tonne in the 4th quarter of 2012-13. That’s lower than the $US131 a tonne average for 62% (iron oxide) because Fortescue’s ore is of slightly lower quality.
Fortescue CEO Nev Power told a briefing that it has been a defining quarter for the company.
"We have continued to see strong demand for our product from our customers in China and across Asia with a net realised price of $121 per tonne, up from $113 per tonne in the June quarter.
"We don’t see any major change in the position that’s been there for a while, the iron ore stocks are still relatively low, and there isn’t a large amount of room for de-stocking.
"Steel demand has actually grown by 8 to 9 per cent in the last 12 months that’s a fantastic result. Not to say there can’t been some short term volatility, but we certainly don’t see any conditions that would support low iron ore price and certainly not for any period of time," Mr Power said.
BHP is due to release its quarterly report early next week.
