Andrew Forrest has reiterated his support for Fortescue Metals Group diversifying its operations into other commodities, but said there were no immediate plans to pursue nickel, or oil and gas over its core iron ore business.
Andrew Forrest has reiterated his support for Fortescue Metals Group diversifying its operations into other commodities, but said there were no immediate plans to pursue nickel, or oil and gas over its core iron ore business.
At the annual general meeting today in Perth, the FMG founder and chairman said the company was always seeking new opportunities, but had not identified any immediate prospects that could provide returns to shareholders as valuable as iron ore, despite current depressed prices.
“That’s why we’re maintaining our discipline, but intellectually be assured that we (are) always exploring the world for other opportunities,” he said.
“Oil and gas is one of about six different commodities which we review all the time. We have plans both immature and mature in several different industries ... and so we are running a slide rule over a number of industries and number of organisations and businesses which we think have longevity but I won’t be ... more specific.”
Mr Forrest said FMG was not interested in diversifying for the sake of it and he considered iron ore to be the “cream of the patch”.
He said FMG continued to consider value adding, providing details of a plan from several years ago about a joint venture with now shareholder Russian steel giant, Magnitogorsk Iron and Steel Works OJSC, to build a steel manufacturing plant in Australia.
He said with costs of more than $7.5 billion for a steel mill consuming less than 20 million tonnes of iron ore, FMG had decided the returns weren’t worth it.
Mr Forrest and chief executive officer Nev Power thanked shareholders for being patient, following low iron ore prices and a steady drop in FMG's share price – from $4.75 in August to around $3 in November.
Mr Forrest said FMG had liaised with experts about contingency plans for if the iron ore price fell even lower to ensure it could still make an adequate return to shareholders in a very low-price iron ore environment.
“I think we will always have an adequate shareholder return, really, at any iron ore price which can be thrown at us,” he said.
Mr Power conceded FMG had not expected the current lower prices, but was relying on the cyclical nature of the market to pick up again.
FMG received $US71 per tonne during the September quarter and had total delivered costs of $US45/t plus $US3/t in interest and $US3-$US4 in sustaining capital, giving it “very strong cash margins”, according to Mr Power.
Both men reiterated previously flagged ambitions to expand to 355mtpa, up from its current run rate of 155mtpa, but said timing on the expansion depended on the iron ore price and would only occur if it could bring returns for shareholders.
“155 is not the end of the road for us, we had ambitions, as you know before, to expand to 355mt and we’ve been busily developing the resource pipeline to enable us to do that,” Mr Power said.
Mr Power said FMG had no new capital demands and defended its decision to pay 20 per cent shareholder dividends (as part of its commitment to eventually ramp up its dividend ratio to 30-40 per cent) and pay down debt despite the falling iron ore price.
Last month, Business News revealed FMG’s large pilot magnetite project in development with China’s Baosteel Group and Taiwain’s Formosa Group had the potential to change the way magnetite was developed in Australia and become a considerably larger part of the fourth largest iron ore miner’s operations.
FMG has identified about five billion tonnes of magnetite resources compared with about 15 billion tonnes of hematite resources across its 85,000 square metres of Western Australian tenements.
FMG director developments Peter Meurs today said the pilot project, which he believed was one of the biggest in the world, would begin processing 1.5mtpa of magnetite from March of next year.
“One thing we know is if we just do it the way it’s been done magnetite projects can’t be successful in Australia so we’re applying some new innovations, some new thinking about how to separate, how to reduce energy costs and we’re really excited about the potential about this magnetite to have a real breakthrough technology wise,” Mr Meurs said.
Mr Forrest thanked retiring board members Graeme Rowley, Herb Elliott and Herbert Scruggs for their help in develop FMG from its establishment, saying their legacy would last forever.
Existing board member Mark Barnaba will succeed Mr Elliott as lead independent director and Owen Hegarty has been appointed vice chairman.
Mr Hegarty joined Fortescue as a non-executive director in 2008 and has more than 40 years experience in the global mining industry.
Non-executive director Sharon Warburton will join the audit and risk committee as part of a reshuffle following the retirements.
All resolutions, including the remuneration report, were passed during the AGM.
