Mt Gibson reports 28% profit slump

The falling iron ore price has contributed to Mount Gibson Iron’s profits slumping 28 per cent over the 2011-12 financial year.

The company, which operates Mid West mines Tallering Peak and Extension Hill and Koolan Island in the Kimberley, has reported after tax profit of $172.5 million; down from $239.5 million in 2010-11.

Full year revenue fell 3.5 per cent, despite the company achieving first production from Extension Hill mine in December last year - doubling its annual output from its Mid West operations to just under 6mtpa.

The company said lower realised iron ore prices were a key factor in the decline in revenue – prices paid for the commodity have fallen 27 per cent from the US$177 per ton paid a year ago.

Mt Gibson was also forced to write down its low-grade ore stockpiles by $25 million.

Higher operating costs at Tallering Peak and Koolan Island because of waste developments and weather-related disruptions resulted in additional expenditure, while the company had also invested in upgrades at both mines and facilities at Geraldton Port.

While commissioning of Extension Hill was positive, the full benefit could not be realised due to log-jams in the rail infrastructure used to transport iron ore fines to the port; hence the material available for shipment and sale was reduced.

Despite the decline in profits, company chairman Geoff Hill maintained the results were strong given the difficult economic conditions.

“Mount Gibson’s ability to generate solid earnings and maintain a strong balance sheet in conditions during the June half that were far more challenging than those of previous periods demonstrates the fundamental strength of our business.”

In a statement to the ASX the company said it would focus on reducing costs to maximise profit margins to help protect it from future price fluctuations.

Shares in the company fell 5 per cent from opening at 93 cents per share to 88 cents (10:14 WST) following release of the results.