Fortescue’s profit jumps

Higher iron ore price underpins strong results

FORTESCUE Metals Group has reported a near fourfold 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 lowerthan-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 lift 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.

Fortescue did not reference the coronavirus directly in its results but chief executive Elizabeth Gaines (left) said in late January its business had so far not been directly disrupted by the 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 frontmonth 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 secondhighest ever annual imports of the steelmaking 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 US.