Fortescue Iron Ore Shipments Jump 5% as Costs Fall Further

Updated on
  • Iron ore and steel markets supported by China activity: CEO
  • Producer is continuing talks with Brazil’s Vale over JV pact

Fortescue Metals Group Ltd., the fourth-biggest iron ore exporter, said first-quarter shipments rose 5 percent, beating estimates, as it also continued to slash costs.

Total shipments were 43.8 million metric tons in the three months ended Sept. 30, the Perth-based producer said Thursday in a statement. That compared to 41.9 million tons a year ago and beat a 42.5 million tons median estimate of five analysts surveyed by Bloomberg. Productivity and efficiency initiatives drove the improved performance, Fortescue said.

Cash costs fell to $13.55 a wet metric ton in the quarter from $16.90 a ton in the same period a year earlier. That compared to a $14 a ton median forecast among four analysts surveyed by Bloomberg. Fortescue aims to limit the impact of higher strip ratios -- a measure of waste when ore is extracted -- that could increase costs by about $1 a ton, it said.

Fortescue advanced as much 1.2 percent before its share price flattened at A$5.15 by 11:17 a.m. in Sydney. The stock is up 175 percent this year and the producer is the best performer among Australia’s 100 largest listed companies.

“At the moment they are certainly making hay while the sun shines,” James Wilson, a Perth-based analyst at Argonaut Securities Ltd. said by phone. With the risk that costs may rise,“we have some caution over when that tide might turn,” he said. Fortescue’s ability to sustain its cost cuts also remains dependent on factors including the oil price and exchange rates, the company said in its statement.

Iron ore and steel markets remain supported by better infrastructure and housing activity in China, Fortescue said. Crude steel output in China in the first nine months is higher than the same period a year ago, data published Wednesday showed, boosting imports of raw materials, including iron ore.

China’s economic growth remained stable in the third quarter, all but ensuring the government’s full-year growth target and opening a window for policy makers to deliver on vows to rein in excessive credit and surging property prices.

Full-year shipment guidance was maintained at between 165 million and 170 million tons in the year to June 30, Fortescue said. The producer will continue to target cash costs of between $12 and $13 a wet ton, it said.

Market Demand

“Our focus remains firmly on continuing to innovate, improve productivity and efficiency for ongoing cost improvements, debt reduction and enhanced shareholder value,” Chief Executive Officer Nev Power said in the statement.

Fortescue is evaluating market demand to determine whether to restart operations at the Nullagine joint venture in Western Australia after it agreed to consolidate ownership by acquiring BC Iron Ltd.’s 75 percent stake. It’s more likely the asset offers a blending option over the longer term, Macquarie Group Ltd. analysts said in an Oct. 10 note.

The producer is also continuing discussions with Brazil’s Vale SA, the top iron ore exporter, over plans outlined in March to blend their differing ores, Fortescue said in its statement. The could make Vale’s higher-quality output more marketable and raise the value of the product from Fortescue.

(Updates to add analyst comment in fifth paragraph.)
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