Fortescue Meets Raised Expectations

By Glenn Dyer | More Articles by Glenn Dyer

As expected Fortescue Mining (FMG) lifted interim dividend thanks to a quadrupling of earnings from the first half of 2015-16 – but local investors were not that fussed yesterday.

The shares fell 2.6% to $6.98 as the world’s 4th biggest iron ore exporter joined peers, BHP Billiton (BHP) and Rio Tinto (RIO) in delivering patient shareholders a larger than expected payout, thanks to surging iron ore prices (which topped a new two year high of more than $US94 a tonne in China).

The iron ore miner said yesterday that December half net profit hit $US1.2 billion ($A1.6 billion), up from $US312 million a year earlier.

With debt falling as the company repays faster than it has to, FMG rewarded shareholders by boosting interim dividend sixfold to 20 cents a share from 3 cents a year ago. And the biggest winner will be executive chair, Andrew, ‘Twiggy’ Forrest who with his holding of 1.03 billion shares, will get around $200 million for is troubles.

The dividend will be paid April 6.

In January after meeting production and export guidance and repeating it for the year, Fortescue said it would be reviewing its capital options. In particular, with gearing under target of 40% after repaying more debt than it had to in the half year, the company found it could also make a higher return to shareholders.

Debt at the end of December stood at $US5.2 billion, down from $US8.5 billion a year earlier, with more to be cut this half as global iron ore prices remain higher than expected. $US1.7 billion in debt was repaid (from June, 2016 levels) and the company had around $US1.1 billion in cash on its balance sheet at the end of December.

So expect another debt repayment soon. Fortescue said the lower debt saved interest of $US64 million in the half.

Paving the way for Fortescue to open the tap and pay shareholders a bigger dividend has been the spike in the iron ore price led by demand in China, which has surprised most analysts and raised doubts – most recently from BHP Billiton late on Tuesday – whether the gains will be sustained.

The higher iron ore prices lifted revenues to $US4.5 billion for the December half, well up from $US3.3 billion a year earlier, with underlying earnings before interest, tax, depreciation and amortisation doubling to $US2.6 billion from $1.3 billion.

“Our team has continued their unwavering focus on delivery against safety, productivity and cost reduction targets. We achieved further improvement in our C1 costs to US$13.06/wmt and shipped 86.1 million tonnes for the half year, slightly ahead of our targets.” Fortescue CEO Nev Power said in yesterday’s statement.

“Our successful operational performance combined with positive market conditions produced strong cash flows facilitating further debt repayments of US$1.7 billion. With ongoing improvements in productivity and efficiency driving consistent cash returns from our world class assets, the Board has declared a A$0.20 per share fully franked interim dividend.”

“Capital management remains our key priority and we will continue to repay debt, invest in the long term sustainability of our business and deliver returns to shareholders,” he said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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