Clever timing yesterday from Fortescue Metals with its somewhat surprising news that it was going to conduct a 12 month $A500 million share buyback.
The news helped the shares hold their ground in yesterday’s gale-force sell-off.
Fortescue shares rose 2.4% to $3.74 as the market fell sharply to end up down by more than 160 points or around 2.8%.
The selling wake sent Fortescue shares down 2% just after the opening but they steadied and rose to be one the few main stocks in green over the session.
That is also what news of a buyback will do – underpin a weak share price and if the sell-off of the past day or so continues, doesn’t be surprised to see others follow.
Fortescue shares are down 24% so far in 2018 but have bounced a bit in the last month to be up just over 4% in that time.
The fall has been linked to the widening discount the company is being forced to accept for its lower grade (58%) Pilbara iron ore fines products in China. That is why it is spending nearly $2 billion on a new mine to start delivery 60% iron ore in 2020.
Fortescue said the share buy-back program is expected to commence after the release of the Company’s Quarterly Report on October 25 and to remain in place for up to 12 months.
Fortescue’s CEO Elizabeth Gaines said, “The share buy-back program is a natural extension of our capital allocation focus which has now clearly shifted from debt reduction following the rapid de-gearing of the balance sheet and the successful execution of our capital management strategy.
“With our continued strong operating performance and new investments underway, the purchase of our own shares, funded out of operating cash flows, maintains our disciplined balance sheet management. This is consistent with our clear business strategy of investing in our core iron ore business while pursuing growth and development and delivering returns to our shareholders.”
Fortescue said the buy-back program does not require shareholder approval as it will be within the ’10/12 limit’ permitted by the Corporations Act.
“The number and timing of shares purchased will depend on Fortescue’s share price and market conditions. All ordinary shares purchased pursuant to the share buy-back program will be canceled. Fortescue reserves the right to vary, suspend or terminate the buy-back program at any time,” it added.