Production costs to rise for FMG

Fortescue Metals Group anticipates slightly higher iron ore shipments in the 2020 fiscal year, but the iron ore miner also flagged higher production costs, which it put down to inflationary and haulage pressures.

Fortescue shipped 167.7 million tonnes for the 2019 financial year, down one per cent on the period prior.

The fall was due to the impact of Cyclone Veronica, Fortescue said.

The company forecast fiscal 2020 shipments of 170 million to 175 million tonnes, a rise of up to 4.35 per cent.

However, it anticipates that its cash production expenses will increase by as much as 8 per cent to between $US13.25 and $US13.75 per wet metric tonne, up as much as 8.0 per cent from $US12.78 in the fourth quarter.

At a telephone conference following the release of the results, chief executive Elizabeth Gaines said inflation was a key factor behind the cost increase.

“You can’t ignore inflation,” she said.

However, Ms Gaines later conceded that other influences were also behind the anticipated cost increase.

This included increased haulage distances pushing up energy and transport expenses.

The company also said it expects 2020 capital expenses of $US2.4 billion, about twice as much as 2019, primarily due to the construction of its Eliwana mine commencing.

It has recently increased exports of its higher grade West Pilbara Fines product to satisfy shifting Chinese demand.

Fortescue delivered 9.0 million tonnes of the new product in fiscal 2019, and expects supply of West Pilbara Fines to double this financial year.

It shipped 46.6 million tonnes in the June quarter compared with 38.3 million tonnes in the prior quarter, and in line with a UBS guidance.

Shares in Fortescue slumped 5.5 per cent at 3.50pm AEST to trade at $8.25 each.