Fortescue Metals Group has reported a strong rise in net profit to just above US$1 billion, while also announcing it will ramp up its capital expenditure this year to an unexpectedly large US$5.6 billion.
Investors reacted warily to the big-spending plans, with the iron ore miner’s share price dipping 30 cents to A$5.75 in a generally weaker market.
Fortescue’s reported net profit jumped 76 per cent to US$1.02 billion, while its normalised net profit increased by an even larger 131 per cent to US$1.63 billion.
The company rewarded shareholders with its maiden final dividend of 4 cents per share (fully franked), taking the full-year payout to 7 cents per share.
Newly appointed chief executive Nev Power told journalists the profit was an “absolutely outstanding result”, saying the key contributor was the company’s unique culture.
"The 2011 financial results reflects Fortescue's substantial earnings power over a year that saw the completion of the Christmas Creek facility, the ramp up to 55mtpa (million tonnes per annum) production rate and the start of the rapid build out to our 155mtpa target," he said.
A key focus for analysts will be the company’s ability to deliver on its ambitious growth plans.
The company said today that capital spending will rise from US$1.8 billion in 2010-11 to US$5.6 billion in 2011-12, though chief financial officer Stephen Pearce said that number could vary by US$500 million (up or down).
Mr Pearce said this amount was higher than previously expected and reflected the bringing forward of work on its expansion projects.
Most of the spending (US$4.7 billion) will be on its plan to lift output by 100 mtpa to 155 mtpa. Its goal is to complete the physical investment by the end of 2012, and to ramp up production to 155mt by June 2013.
The company said it already has US$4 billion of contracts committed. Overall, its expansion projects are expected to cost US$8.4 billion.
Not content with that growth, Mr Power said the company was aiming to lift production to 255mtpa by 2015-16 and was undertaking exploration work to support growth to 355mtpa.
Looking at last year’s result, tonnes of iron ore shipped totalled 40.9 million tonnes (Mt), comprising Fortescue's share of 40Mt and the remainder representing ore shipped for other miners.
(However Fortescue said its production was currently at an annual rate of 55mtpa following commissioning of Christmas Creek in June.)
The average iron ore sales price achieved, including Fortescue's freight costs, was $US149 ($A143.84) per dry metric tonne, reflecting strong demand for the steel making commodity across international markets.
This was offset by increases in underlying unit costs, primarily as a result of the stronger Australian dollar, up 12 per cent on average, and higher costs of mining as a result of the expansion work.