Iron ore miner Fortescue Metals has cut its interim dividend after half-year profit slid 44 per cent, in its first results under new chief executive Elizabeth Gaines.
The world’s fourth-biggest iron ore exporter made a net profit of $US681 million ($A866 million) in the six months to December 31, down from $US1.22 billion a year earlier.
Revenue for the half was down 18 per cent to $US3.68 billion.
The result was better than market expectations of a profit of around $US635 million.
Ms Gaines, who took charge from Nev Power this week, highlighted a consistent performance and a further lowering in costs.
“Despite volatile market conditions Fortescue has continued to improve our operational cost performance and we have delivered strong margins and cash flow,” she told reporters.
Prices have remained firm through last year – trading between $US60 and $US70 a barrel, but discounts between the top grade iron ore and Fortescue’s lower grades have widened in recent months, as Chinese steel mills use higher iron content ores.
The miner realised an average price of $US47 a tonne, or 68 per cent of the Platts 62 CFR index during the half-year.
Fortescue expects an average realised price for the full-year to range between 70 and 75 per cent of the benchmark Platts 62 CFR index.
Chief operating officer Greg Lilleyman said the focus remains on chasing margins through lowering costs and matching the market on price.
“The (Chinese) steel mill profitability has been the key driver of the differential in prices and I can’t believe that profitability will stay so high in the long term,” he said.
Mr Lilleyman said he expects a return to cheaper grades of iron ore as operating restrictions currently placed on Chinese mills are lifted in March.
China ordered cuts on steel production in a number of cities during the winter as part of an anti-pollution campaign. Restrictions included production limits, switching fuel from coal to gas, and upgrading of equipment.
RBC Capital Markets analyst Paul Hissey said prices may not rebound as the company expects.
“We continue to see downside risk to the recovery in price realisation and maintain our cautious view on Fortescue,” Mr Hissey, who has an ‘underperform’ rating on the stock, said in a note.
Fortescue surprised the market by cutting its interim dividend to 11 cents a share, down from 20 cents a year ago.
The company said its target payout ratio of 50 to 80 per cent of net profit would be based on full-year results, suggesting shareholder returns will be weighted to the second half of the year.
Fortescue shares dropped 25 cents, or 4.7 per cent, to $5.11.
The company said it has raised a $US1.4 billion syndicated term loan through Chinese, European and Australian financial institutions, with the proceeds to be used to partially redeem its senior secured notes due in 2022.
This will result in its borrowing cost reducing by about $US80 million per annum, the company said.
FORTESCUE’S HALF-YEAR PROFIT SLIDES:
* Net profit down 44pct to $US681m
* Revenue down 18pct to $US3.68b
* Interim dividend down 9 cents to 11 cents a share