The market didn’t like the news from Fortescue Metals’ (FMG) quarterly and June financial year production report yesterday, which contained some promising news on costs and production.
Put simply investors were not impressed at the 33% jump in shipments in the year to June, which was a bit better than expected, nor the sharp fall in average per tonne costs in the 2014-15 year, thanks to intense cost-cutting and forecasts of more to come this financial year.
Nor were they impressed with the news that Fortescue will not boost production and shipments this financial year past the 165 million tonne mark – which is where it was in the year to June.
As a result the shares slid 6% during yesterday’s weak market and ended at $1.645 after touching a low in trading of $1.635.
Fortescue said that the recent revamp of its work rosters and changes to contractor agreements (hurting companies such as Macmahon Holdings and benefiting others such as Downer EDI) helped deliver cost savings of $US1.6 billion in the past two years, with a further $US1.4 billion in savings expected in 2015-16.
Fortescue said its cash costs of production dropped 14% to $US22 per tonne in the June quarter, and it expects that to fall again to an average of $US18 a tonne over the coming year.
And total delivered costs, which include shipping, royalty and administration costs, were also lower at $US28 a tonne in the June quarter.
Fortescue estimated yesterday that its breakeven price in the year ahead will be around $US39 per tonne (current prices are just over $US50 a tonne), while the average realised price in the year to June was $US57 per tonne.
Fortescue said it was basing much of these figures on an exchange rate for the Aussie dollar of around 77 US cents (the currency is around 74 US cents at the moment).
Fortescue said it met its recently increased production forecasts in the year to June, shipping 165.4 million tonnes of iron ore.
In fact Fortescue shipped ore at an annualised run rate of 169.6 million tonnes in the June quarter, a period which also saw chairman Andrew Forrest continue a national campaign against BHP and Rio, and call for an iron ore inquiry.
That made it the third biggest iron ore exporter from Australia after Rio Tinto and BHP Billiton, and the 4th largest in the world when Vale of Brazil is included.
The performance in 2014-15 was up 33% over the previous year. Second half shipments were around 85 million tonnes, up from just over 80 million tonnes in the first half.
Net debt at June 30 was $US7.2 billion.