Fortescue earnings plunge in Q3, cuts ore production

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Apr 2009

Fortescue Metals disclosed yesterday a steep fall in third-quarter earnings and cut its annual production forecast by 15 per cent. The downgrade by  the miner came after excessive rain in the Pilbara region of Western Australia reduced output and pushed up costs. Iron ore mined in the three months to March 31 was 6.55 million tonnes, down 23 per cent from 8.46 million tonnes in the previous quarter.
In a slideshow filed with the Australian Securities Exchange after the production result was released, Fortescue said its third-quarter earnings before interest tax, depreciation and amortisation fell to $US75 million ($105 million), from US$193 million in the previous quarter.
A 20 per cent fall in revenue to $US381 million was more in line with the fall in production, indicating Fortescue's costs increased over the quarter.
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Cash operating costs per tonne of ore mined rose to $US32.02 from $US26.55 on the previous quarter as wet weather increased the dampness of feedstock.
Fortescue also said it lost $US46 million on forward shipping contracts. A significant downturn in the global iron ore market has crimped iron ore demand and reduced prices. Fortescue, however, sells ore on annual contracts, expected to be renegotiated over the coming weeks.
In the third quarter, Fortescue scaled back drill and blast mining to focus more on surface miners because the market for lump ore has shrunk. Improved surface miner production rates were impacted by severe rain in the Pilbara in late February and March.  The Perth-based company said it won't be able to catch up lost production and set its full-year sales guidance at 26 million tonnes, down "around 15 per cent" on previous guidance.
Fortescue, which recently received regulatory approval for an investment in the company by China's Hunan Valin Iron and Steel, said in the slideshow that it had $US191 million cash at March 31 and $US51 million in security deposits.
Hunan Valin Iron & Steel Group’s investment in Fortescue Metals Group was given regulatory approval by Beijing.
As of today, the deal is “done, it’s concluded, they are a shareholder,” Fortescue Metals executive director Russell Scrimshaw said on the sidelines of an iron-ore conference in Beijing.
China’s State Administration of Foreign Exchange and the Ministry of Commerce have approved the transaction, he said.
Investors reacted negatively to the production guidance and earnings slide, pushing Fortescue's shares down 3.8 per cent to $2.33 by mid-afternoon, compared to a 0.3 per cent rise in the benchmark S&P/ASX 200 index.

Source: Dow Jones