Fortescue applauds Chinese demand following profit hike

The Iron Bridge operation. Image: Fortescue Metals Group

Fortescue Metals Group has achieved a record $US3.2 billion ($4.75 billion) net profit after tax in the 2019 financial year, a 195 per cent increase on the previous period as Chinese appetite grew.

The company’s average revenue per tonne increased from $US44 per dry metric tonne to $US65, driving Fortescue’s revenue by 45 per cent to $US9.965 billion during the fiscal period.

Chinese steel production grew by 9.9 per cent in the first half of 2019 compared with the prior comparable period.

This is credited to the moderation of steel mill margins and narrowing of price spreads in China from late 2018.

Fortescue was founded by Andrew Forrest on a vision to meet the iron ore supply gap in China, according to chief executive Elizabeth Gaines.

The company is now the lowest cost producer, as well as a core supplier of seaborne iron ore to China.

“Just as our long-term engagement with China has played a critical role in Fortescue’s growth, it will continue to be a core part of our future,” Fortescue chairman Forrest said.

“We see China as both our friend, and our business partner.”

Fortescue has also raised the bar for its 2020 financial year shipments target to 170–175 million tonnes, up from the 167.7 million tonnes of ore shipped in the 2019 period.

The target includes 17–20 million tonnes of West Pilbara Fines products, aligned with Fortescue’s strategy to increase its volume of higher value products shipped.

West Pilbara Fines delivered five per cent of Fortescue’s product mix since its introduction in December last year.

“We are executing our strategy of producing the majority of our products at greater than 60 per cent Fe (iron),” Gaines said.

“Our $US3.875 billion investment in growth through the Eliwana mine and rail development and Iron Bridge magnetite projects will increase the average iron content of our ores, providing Fortescue with flexibility to meet our customers’ requirements and enhance returns to shareholders through all market cycles.”

Fortescue is set to allocate $US2.4 billion in capital expenditure to major projects such as Eliwana ($US700 million) and Iron Bridge ($US500 million), and other development programs, including Queens Valley in the Pilbara ($US150 million) in the 2020 period.

The company has also announced an increase to its ore reserves across the Solomon and Chichester Hubs and the Western Hub development (including Eliwana), which climbed from 2.25 billion tonnes to 2.288 billion tonnes of ore reserves consisting 57.5 per cent iron.

Fortescue’s mineral resources also increased from 6.122 billion tonnes to 6.175 billion tonnes of mineral resources consisting of 56.3 per cent of iron.

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