Fortescue last month reported a 9.0 per cent rise in second-quarter iron ore shipments. Image by Kim Christian/AAP PHOTOS

Mining and Resources

Fortescue posts near fourfold profit rise

2020-02-20 12:52:13

Fortescue Metals Group has reported a near four-fold jump in first-half profit as it cashed in on higher iron ore prices, while analysts said a lower than expected dividend reflected caution on the global economy.

Fortescue is the second of the global iron ore giants to report results this season, and also the second to offer lower than anticipated payouts which analysts said reflected a move to keep some cash in reserve given uncertainties over global economic growth following the coronavirus outbreak.

BHP Group on Tuesday also declared a slightly lower dividend despite a windfall from last year’s fillip in iron ore prices.

“It’s a solid, in-line result with the dividend slightly light. The board is opting to be conservative given the uncertainties over global growth,” said UBS analyst Glynn Lawcock in Sydney.

The Perth-based miner declared an interim dividend of 76 cents per share, up from 19 cents per share last year, but below a consensus forecast of 80 cents.

Shares in Fortescue were up 1.22 per cent to $11.19 at 1250 AEDT. 

Fortescue did not reference the coronavirus directly in its results but Chief Executive Elizabeth Gaines said in late January its business had so far not been directly disrupted by outbreak in its main market, China.

Net profit for the six months ending December 31 was $US2.45 billion, compared with $US644 million a year earlier. 

The figure was higher than a UBS estimate of $US2.37 billion.

Following the disaster at the tailings dam owned by then top iron ore producer Vale SA in January last year, iron prices soared, with Dalian Commodity Exchange’s front-month iron ore futures contract gaining 28 per cent in 2019.

Last month, Fortescue reported a 9.0 per cent rise in second-quarter iron ore shipments, revised down its cost guidance to $US12.75 – $US13.25 per wet metric tonne and indicated its production would reach the top end of its target range.

China, the world’s top steel producer, posted its second-highest ever annual imports of the steel-making ingredient in 2019 as Beijing boosted stimulus to avoid an economic slowdown, prompting strong demand from the property and infrastructure sectors.

Fortescue has been raising the mix of premium feed in its shipments with the addition of its West Pilbara Fines product, as Chinese demand for less-polluting, high-quality ore is expected to accelerate in 2020 following a trade deal with the United States and further infrastructure investment.

The miner also maintained forecast iron ore guidance of shipments at the upper end of the 170 million to 175 million tonne range despite supply disruptions in Western Australia after Cyclone Damien earlier this month forced Rio Tinto to downgrade its production forecast.