Mount Gibson Iron increased its profit 73.5 per cent compared to the prior year despite getting a much lower price for its iron ore.

An increase in sales revenue to $254.1 million from $182.7 million in FY18 saw Mount Gibson (ASX:MGX) book a profit of $99.1 million – up from $26.3 million a year earlier.

Investors were happy because this means they get a dividend. Shares climbed nearly 8 per cent to an intra-day high of 49c on Wednesday.

“It’s very pleasing to reflect this financial performance in the payment of a fully franked final dividend for the 2017-18 financial year of 3 cents per share,” chief Jim Beyer said.

It’s a pretty good effort considering the price differential between the benchmark Platt’s 62 per cent and 58 per cent iron ore prices widened significantly over the course of the year.

Lower grade iron ore suffered discounts of as much as 40 per cent as Chinese steelmakers increasingly favoured higher quality feedstocks to boost mill productivity and meet more stringent pollution control measures.

Mount Gibson Iron (ASX:MGX) shares climbed on bigger profits for FY2018.
Mount Gibson Iron (ASX:MGX) shares climbed on bigger profits for FY2018.

Mount Gibson said this significantly impacted sales revenue from its Mid-West operations in Western Australia.

Standard direct shipping ore fines from Iron Hill, which typically average a grade of about 59 per cent iron ore, sold for roughly $US30 ($41.5) per tonne – a significant drop on the prior year’s $US44 per tonne.

However, the pricing for lump ores was much better, fetching $US59 per tonne.

This bumped up the total average realised price across all of Mount Gibson’s iron ore mines in Western Australia to $54 per tonne – just $1 per tonne less than the 2017 financial year.

Bolstering its bottom line further was a 13 per cent reduction in all-in group cash costs to $45 per tonne.

Mount Gibson says it is on track to deliver first iron ore sales from the restart of the Koolan Island mine in the March quarter next year.

The company predicts it will sell 2.7 million to 3.3 million tonnes in the current financial year – less than the 3.6 million tonnes it sold last year.