You are using an older browser version. Please use a supported version for the best MSN experience.

Fortescue cashes in on rising production

AAP logoAAP 19/10/2016 Prashant Mehra

Fortescue Metals Group has made a strong start to the financial year, boosting iron ore shipments in the first quarter as larger rivals BHP Billiton and Rio Tinto have struggled to keep pace.

Fortescue, the world's fourth biggest iron ore exporter, shipped 43.8 million tonnes of iron ore in the three months to September, up five per cent from 41.9 million tonnes a year earlier.

The company also trimmed cash production costs to $US13.55 per wet metric tonne - its 11th straight quarter of cost cuts - and repaid a further $US700 million ($A906 million) in debt.

The strong performance contrasts with a flat iron ore output by BHP in the same period, and a five per cent decline in shipments by rival Rio Tinto that forced it to trim annual guidance.

"The key to our sustained performance has been the alignment of our marketing and operations strategies to optimise production, maximise efficiency and consistently deliver quality products," Fortescue chief executive Nev Power said.

The company made a higher-than expected profit in the 2015/16 financial year, topped its production guidance and slashed costs by more than 40 per cent.

Fortescue has maintained its 2016/17 shipment guidance of 165-170 million tonnes, and said it is on track to lower cash production costs to $US12-$US13 per wet metric tonne by the end of the financial year.

"We are not intending to invest in any fresh production capacity. Any tonnes we increase will come from natural efficiencies," Mr Power said, adding that he believed the market was currently in supply-demand balance.

Iron ore prices slumped to a decade low of $US38 a tonne in late 2015, but have since recovered and currently trade at $US58 a tonne.

The rebound in recent months has given Fortescue breathing space to align its cost structure with larger rivals BHP, Rio and Brazil's Vale, and use the extra cashflow to trim its heavy debt burden.

Fortescue held $US1.8 billion in cash at September 30, while net debt stood at $US4.2 billion.

"Of all the companies under our coverage, Fortescue has consistently shown ability to surprise to the upside, whether it be on sustaining capex or operating costs. As such, it is hard to take a negative view on the stock despite the overwhelming consensus view of falling iron ore prices," RBC Capital Markets mining analyst Paul Hissey said in a note.

Fortescue shares were down 7.5 cents at $5.075 at 1455 AEDT, but have more than doubled in value in the past 12 months.

image beaconimage beaconimage beacon