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Mining
$85 billion iron ore major Fortescue (ASX:FMG), which briefly hit an all time high share price of nearly $30 at the end of January, has seen a stunning 41% lift in profits to US$3.337 billion on the back of surging iron ore prices and smaller discounts for its low grade product.
It’s helped FMG boost its interim dividend to $1.08 per share, up 44% on a year earlier at a payout ratio of 65% of earnings, the latter number unchanged from a year before despite the company’s decision to begin sanctioning capital intensive green energy projects in the US and Australia.
That’s $3.3 billion Aussie, around $1.2b of that to companies connected to Andrew Forrest and his separated wife Nicola.
FMG shipped 94.6Mt of iron ore out of Port Hedland in the December half, bettered only by its production a year earlier, with underlying EBITDA of US$5.9 billion up 36% on the same period in FY23.
Revenues of US$9.5b were 21% up with realised prices rising 24% from US$87.18/t to US$108.19/t — an impressive 89% of the Platts 62% Fe index thanks to improved payability for low grade ore, which is in demand due to weak profit margins at Chinese steel mills.
Costs meanwhile were only 2% higher to US$17.77/wmt.
FMG expects to export 192-197Mt of iron ore in FY24, including 2-4Mt of Iron Bridge where a production ramp up has been impacted by the performance of a raw water pipeline, which will cost US$100m — largely spent in FY25 — to rectify.
That will come at a cost of US$18-19/wmt for its hematite output, with metals capex of US$2.8-3.2b and energy opex this year to come in at US$800m and capex at around US$500m.
US$1.5b was spent on capex in the first half, including US$999m on sustaining capital and iron ore hub development, US$121m on exploration and studies, US$134m on iron ore projects, US$104m on decarb and US$165m by FMG’s green energy business.
FMG metals boss Dino Otranto said FMG remained focused on value creation.
“Fortescue’s performance in the first half of FY24 has been excellent, with the team achieving our second highest first half shipments while maintaining our strong focus on safety and keeping our costs low. This contributed to outstanding financial results, with EBITDA of US$5.9 billion and net profit after tax of US$3.3 billion,” he said.
“The strength of our operating and financial performance and our commitment to deliver returns to shareholders has resulted in the Board today declaring a fully franked interim dividend of A$1.08 per share, representing a 65 per cent payout of first half net profit after tax.
“Whether it’s through our first green energy projects, our diversification into the high grade segment of the iron ore market through Iron Bridge, or expansion of our global footprint with the Belinga Iron Ore Project in Gabon, we remain committed to creating value for all our stakeholders.”
Despite its recent record share prices and to some extent because of them, FMG has regularly been rated a sell by analysts frustrated with their inability to assess the value of its rapidly morphing green energy business.
It’s approved over US$700m of spending across the 11,000tpa Phoenix Hydrogen Hub (US$550m), an 8000tpa eletrolyser plant and green hydrogen project at Gladstone (US$150m) and 1500tpa green iron trial plant at the Christmas Creek mine in the Pilbara (US$50m).
But there were no updates on projects to be ‘fast-tracked’ in Kenya, Brazil and Norway, with energy CEO Mark Hutchinson stressing the need to show financial discipline in the green arm.
“The delivery of our decarbonisation plan continues to gain momentum with the deployment of our 240 tonne battery electric haul truck, Roadrunner, and commissioning of Australia’s first operational electric excavator,” he said.
“We have also completed vessel conversion works on the Green Pioneer, which we showcased at COP28 in Dubai, and are nearing the completion of testing, commissioning and class accreditation.
“Over the half we also continued to make important progress across the four verticals now established within our Energy business – green energy production, battery technology development, hydrogen systems and capital.
“We have a strong pipeline of projects to come, and we will continue to show the same financial discipline that Fortescue has shown for 20 years.”
It is also yet to approve a 550MW project at Gibson Island in Queensland, benchmarking of which Goldman Sachs analysts suggested could take the company’s project construction costs for its major green projects to between US$10-20b.
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