Bloomberg News

Fortescue Posts Lower Profit on Ore Prices, Scraps Dividend

February 20, 2013

Fortescue Metals Group Ltd., Australia’s third-biggest iron ore producer, reported a 40 percent plunge in first-half profit because of lower commodity prices and said it won’t pay a dividend. The shares fell.

Net income slipped to $478 million in the six months to Dec. 31 from $801 million a year earlier, the Perth-based company said today in a statement. While no dividend will be paid for the period, Fortescue will consider a full-year payout, it said. The earnings compare with the median estimate of $476 million from three analysts surveyed by Bloomberg and a Bloomberg forecast of 4 cents a share interim payout.

Fortescue, which raised $5 billion in new loans four months ago, slashed spending, sold assets and cut jobs in September after iron ore prices dropped to a three-year low of $86.70 a metric ton. Prices have since recovered to $158 yesterday on signs of economic recovery in China, the biggest consumer of industrial metals.

Fortescue dropped 5 percent, its biggest decline in five months, to A$4.92 at the close of trading in Sydney. The stock trimmed its gain for the year to 5.8 percent.

“The result doesn’t look good on a short-term view,” Evan Lucas, a strategist at IG Markets Ltd., said by phone from Melbourne. “Last year iron ore prices were pretty low and that’s really taken a big chunk of their profit.”

The decision to scrap the dividend will “disappoint shareholders -- there’s no doubt about that,” he said.

Dividend Outlook

Any full-year dividend will depend on the strength of iron ore prices, production and proceeds from any asset sales, Fortescue said today. Over time, the company will aim to pay 30 percent to 40 percent of profits as dividend, it said.

Iron ore prices averaged 27 percent lower during the six months to Dec. 31 at about $116 a ton, compared with the previous year, data from The Steel Index Ltd. shows. Iron ore may fall 35 percent by the year-end after advancing to $170 a metric ton in the first half as mines in China boost production, cutting import demand in the world’s largest buyer, according to Westpac Banking Corp.

“Earnings were significantly impacted by a decrease in the global iron ore price,” Fortescue said in today’s statement. “Despite challenging market conditions during the half, we have delivered record operational performance.”

Prices will stay above $120 a ton over the longer term amid sustained demand from China and a constrained supply from countries such as India, Chief Executive Officer Neville Power said on a conference call after the result.

Capacity Boost

Fortescue shipped 35.7 million tons of ore in the half- year. The company is on schedule to boost annual output capacity to 155 million tons by the end of 2013, Power said.

Rio Tinto Group, the world’s second-biggest iron ore exporter, said last week it sees the positive momentum that developed in the fourth quarter last year being sustained into 2013. Rio reported full-year underlying earnings of $9.3 billion that beat analyst expectations.

BHP Billiton Ltd., which today named copper unit head Andrew Mackenzie as chief executive officer to succeed Marius Kloppers, reported a 58 percent decline in first-half profit to $4.2 billion, missing the $5.6 billion median estimate of five analysts surveyed by Bloomberg.

Fortescue is seeking to sell a minority stake in its rail and port operations in Western Australia, valued at as much as $4 billion, according to CIMB Securities (Australia) Ltd. The company has started the sale process and received “strong interest” from a number of strategic and financial investors, Fortescue said, adding that a deal could be concluded by the end of June.

To contact the reporters on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net; Soraya Permatasari in Melbourne at soraya@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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