Iron ore sharp recovery helps Fortescue nearly quadruple profit
Australian iron ore producer Fortescue Metals Group (ASX:FMG) became the latest miner to inject good news into the industry by posting Wednesday a major increase in profit for the six months to December on the back of climbing iron ore prices and reduced costs.
The world's fourth largest miner of the steelmaking ingredient logged a net profit of $1.2 billion in the first-half of its financial year, almost quadrupling the $319 million it posted a year earlier, on a 34% jump in sales to $4.5bn.
The world's fourth largest miner of the steelmaking ingredient has benefitted from declining costs and a prices surge due to booming demand from China.
As a result, the Perth-based firm is paying an interim dividend of 20 Australian cents for the period, up from 3 Australian cents a year ago.
After a 85% rise in 2016, iron ore prices have improved by over 16% so far this year and the commodity has more than doubled in value since hitting near-decade lows at the end of 2015.
While iron ore prices were trading at multi-year lows, Fortescue worked on aligning its cost structure with larger rivals BHP Billiton, Rio Tinto and Vale, using the additional cash flow from the price rally to pay up debt faster than planned.
"Our successful operational performance, combined with positive market conditions produced strong cash flows facilitating further debt repayments of US$1.7 billion," chief executive Nev Power said in the statement.
"Capital management remains our key priority and we will continue to repay debt, invest in the long term sustainability of our business and deliver returns to shareholders," he noted.
But Fortescue is cautiously optimistic about the future, expecting prices to soon ease back from the current price of $94.30 a tonne as of Wednesday, according to data from the Metal Bulletin.
Shares in Fortescue closed down 2.7% at A$6.98 on Wednesday in Sydney, but are up almost 19% this year and about 400% since January 2016, when the stock hit a low of A$1.39.