Fortescue Metals Group has reported increased iron ore shipments over the December quarter, but the benefits have been offset by costs of expanding and ramping up operations.
The company increased ore shipped by 22 per cent on the September quarter from 16.1 million tonnes to 19.6 million tonnes. That is 32 per cent higher than the amount shipped during the December 2011 quarter.
The improvement in iron ore prices also enabled Fortescue to achieve sales of approximately US$111 per dry metric tonne, up from US$98/dmt in the September quarter.
However costs required to ramp up production - including bringing production at the Solomon Firetail mine up to annual rate of 20 million tonnes – increased costs to around US$50 per wet metric tonne.
The Firetail expansion is expected to be completed by the end of March and will increase Fortescue’s production capacity to 115 mtpa.
The decision to restart work on the Kings mine, also at the Solomon asset, is anticipated to keep Fortescue’s cash costs at between US$45-$50/wmt for the 2013 calendar year.
The company has flagged December 2013 as the completion date for Kings, which would lift annual production to 155 mtpa.
Following both the Firetail and Kings mine ramp ups cash costs are expected to reduce to around US$25 to $30/wmt.
Chief Financial Officer Stephen Pearce told media total costs were about US$20 more than the cash costs reported; giving the company a current profit margin of about US$40 per tonne before interest and taxes were taken into account.
Chief executive Nev Power said the December results showed strong performance for Fortescue, despite difficult conditions.
“We were tested during the quarter when the iron ore price fell some 36 per cent…we needed to respond quickly and decisively to address our profitability and funding.”
That led Fortescue to defer work on the Kings mine, which it opted to restart this month when global iron ore prices recovered from below US$90 to US$135 per tonne.
Mr Power said the company’s iron ore was currently attracting a price of just over US$146 per tonne, but he anticipated prices to trade at around US$120 per tonne in the medium term.
“There will be volatility in that as we see a local and seasonal destocking and restocking, but that’s what we expect it to average over the year.”
Despite that Fortescue didn't expect to have to pay mineral resources rent tax in the 2013 financial year.
"Even if we saw iron ore prices continue at these levels for the balance of the year we would not expect to pay any MRRT this year," chief financial officer Steven Pearce told reporters on Thursday.
