Fortescue Metals Group Limited (ASX: FMG) has reported its production results for Q1 FY20 this morning. Here’s a quick guide to the main points.
About Fortescue
Founded by Andrew Forrest in 2003 and headquartered in Perth, Fortescue is the fourth largest iron-ore producer in the world, up there with the likes of BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO). Fortescue is now the lowest cost provider of iron ore to China and the company continues to expand its operations into Japan, South Korea and India.
Key Points
Fortescue reported shipments of 42.2 million tonnes (mt) for the quarter, up 5% from Q1 FY19, while cash production costs declined during the quarter, down 2% to US$12.95 per wet metric tonne.
One of the most significant results was that the average revenue received increased by 89% to US$85 per dry metric tonne.
Fortescue aggressively reduced debt during the quarter with net debt at 30th September 2019 of US$0.5 billion, compared to US$2.1 billion at 30th June 2019. Cash-on-hand also increased from US$1.9 billion to US$3.4 billion.
Fortescue reported a safety score, or Total Recordable Injury Frequency Rate (TRIFR), of 2.7 for Q1, an improvement of 4% on the previous quarter.
There was continued strong demand from China during the quarter, with crude steel production in China reaching 745 mt, 8.4% higher than the prior comparable period.
Fortescue CEO Elizabeth Gaines described the results as “outstanding operational performance”.
“The combination of operational performance and realised price has generated exceptional operating cashflows and lowered net debt to US$0.5 billion at 30th September 2019,” she said.
“This has provided the capacity to further strengthen the balance sheet through debt reduction and refinancing of the Term Loan on improved terms.”
FY20 Guidance
Fortescue estimates shipments of 170 to 175 mt in FY20, with cash production costs between US$13.25 and US$13.75 per wet metric tonne.
The total dividend payout ratio will be between 50% and 80% of the full-year net profit after tax (NPAT).
Is Fortescue A Buy?
Fortescue looks to be in a very strong position with its increase in cash-on-hand and decrease in debt, and prices have been favourable during the quarter. While it looks appealing, I’m always cautious about these price-taking businesses that rely on commodity prices increasing.
I’d be more comfortable investing in one of the proven businesses in the free report below.
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Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.
