The Fortescue Metals Group Limited (ASX: FMG) share price will be under the spotlight today after the mining giant revealed its FY21 third quarter.
Will the update be good for the Fortescue share price?
Fortescue announced another big quarter for the three months to 31 March 2021.
The mining giant said that it shipped 42.3 million wet metric tonnes (wmt) of iron ore for the quarter, that was the same as the third quarter of FY20. However, it was a 9% reduction on the second quarter of FY21.
C1 costs of US$14.90 per wet metric tonne was 16% higher than the previous quarter due to seasonally lower volumes and the strong Australian dollar. The year to date C1 cost is US$13.45 per wmt.
Fortescue disclosed that Chinese crude steel production was 1,065mt for the 2020 calendar year and 271mt in the first quarter of 2021, an increase of 15.6% compared to the same period in 2020. The miner said that underlying demand for iron ore remains strong and index prices increased during the March quarter.
Average revenue for the third quarter of FY21 was US$143.12 per dry metric tonne (dmt), an increase of 17% over the previous quarter. The strong iron ore price has really helped the Fortescue share price in recent times.
Balance sheet and FFI
Fortescue said that it had net debt of US$1 billion at 31 March 2021, after the payment of the FY21 interim dividend of US$3.5 billion and capital expenditure of US$909 million in the quarter.
Fortescue Future Industries is assessing renewable energy and green hydrogen opportunities globally. It will be a key enabler of Fortescue’s carbon neutrality pathway through the development of renewable energy, green hydrogen and green ammonia projects in Australia and internationally.
FFI is currently testing large battery technology in Fortescue’s haul trucks. It’s also trialing hydrogen fuel cell power for Fortescue’s drill rigs. It’s also trialing technology on Fortescue’s locomotives to run on green ammonia. FFI is conducting trials to use renewable energy in the Pilbara to convert iron ore to green iron at low temperatures without coal.
Summary thoughts on the Fortescue share price
Guidance for shipments remains unchanged at 178mt to 182mt. C1 costs are expected to be between US13.50 per wmt to US$14 per wmt.
Fortescue is doing the right things to future proof its business. It’s also capitalising strongly on the great iron ore prices. It’s anyone’s guess how long these prices will stay this high, but it seems to be staying strong for longer than expected. This should help the dividend. The HY21 dividend was huge.
I’m a small shareholder of Fortescue after the recent dip of the Fortescue share price to around $20. I like FFI and the exploration activities it’s undertaking to unlock some more projects. However, I’m wary of what effect recovered Brazilian iron ore in the short-term and potentially African iron ore in the long-term will have on iron ore prices.
I think there could be a cheaper price to buy Fortescue shares when Chinese demand inevitably slows down. That’s what I’m waiting for before buying more.
Until there, there are other ASX dividend shares that I’m looking at.
