Fortescue Metals Group seems on the way to boosting iron ore exports more than forecast – at a time when prices have hit levels never expected by the company or the industry in 2016.
After the March quarter was free of major disruption from bad weather, Fortescue told the ASX yesterday in its March quarter production report that it could reach 165 million tonnes or more by June 30, if the current quarter was weather-free.
It shipped 42 million tonnes in the March quarter, meaning it can reach its full year guidance with exports of less than 40 million tonnes in the June quarter.
It shipped about 84 million tonnes in the first half of the financial year. Based on the 9 month performance so far, the company seems on track to be finished between 165 and 170 million tonnes.
With world prices up 36% to just over $US59 a tonne on Tuesday (and a peak this year of more than $US63 a tonne), the prospects are for the company to surprise on the upside with its 2015-16 results.
Fortescue said its unit cost for producing iron ore would average $US15 a tonne for the year to June 30.
The company maintained its cost target for the financial year at a unit cost of $US13 a tonne, but that target is under pressure because of the recent rise in the Australian dollar (it is close to 77 US cents).
CEO Nev Power said in yesterday’s statement, “The March quarter reinforces Fortescue’s consistent delivery of outstanding results across all areas of the business. C1 costs have been lowered further to $14.79/wmt, the ninth consecutive quarterly reduction, with productivity and efficiency gains offsetting increases in the Australian dollar and fuel prices.
“Our team has continued to innovate and deliver sustainable cost improvements generating strong cash margins. Cash balances have increased by US$200 million during the quarter, lowering net debt to US$5.9 billion and positioning us for further debt repayment,” he said. The better than expected iron ore prices have allowed the company to lower its net debt again to $US5.9 billion from $US6.1 billion at the end of December.
It has a cash balance of $US2.5 billion, up from $US2.3 billion three months earlier.
In February, Fortescue said it required the iron ore price to be above $US28.80 a tonne to break even.
That break even price may be higher now given the rise in the Australian dollar over the past three months.
Fortescue shares rose 7.4% to $3.18 yesterday.
