Iron ore miner Fortescue Metals Group cuts costs to stay profitable

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FORTESCUE Metals has reassured investors it remains profitable despite the brutal slide in iron ore prices.
The miner says it has reduced its break-even price to around $US46 a tonne, giving it a “very healthy” profit of around $8-10 a tonne even with iron ore prices at a five-year low.
And chief executive Nev Power said with high cost producers in China and other parts of the word shutting down or reducing production, demand for iron ore was now meeting supply.
“The market is in balance, the stockpile has been reducing,” he said.
Mr Power blamed speculators on futures markets for the ongoing slide in prices.
“The futures market has opened the iron ore trade up to a lot of non-industry investors and speculators,” he said.
“We are seeing the market price driven by that speculation rather than by supply/demand balance.”
Fortescue shares jumped 19 cents or 9.31 per cent to $2.23 on Thursday after the company indicated it was continuing to cut its production costs.
The cost of a delivered tonne of iron ore fell from $US45 to US$41 during the December quarter and Fortescue expects it to fall to around $US35 a tonne during the second half of 2014/15.
That puts its all-in costs for its end product at around $US46 a tonne, which compares to the roughly $US56 the company is currently receiving from buyers.
Mr Power attributed the lower costs to improved productivity though the falling Australian dollar, and lower oil prices have also helped the company.
Iron ore prices have fallen from around $US120 a tonne a year ago to around $US63 a tonne, though Fortescue receives around 84 per cent of the average price due to the lower grade of its product.
But analysts continue to question the company’s high debt levels, especially at current prices.
“The report today looked relatively positive but what I would be worried about is that net debt looks quite high at $US7.5 billion,” IG market strategist Evan Lucas said.
Mr Power said the company was focused on paying down that debt, having now made $3.6 billion in early debt repayments.
“Our priority remains on repaying the debt that we use to fund out expansion and on disciplined cost management across our business.”
Iron ore price falls dent Rinehart wealth

The fortunes of Australia’s richest people have been hit by tumbling commodity prices.
However, iron ore magnate Gina Rinehart retains the top spot on the latest Forbes Australia rich list with a net worth of $11.7 billion.
Forbes says Ms Rinehart and fellow miners Andrew Forrest and Clive Palmer have all taken hits to their wealth due to a worldwide decline in the demand for steel, particularly in China.
Mr Palmer’s estimated wealth has fallen below $US550 million — the cut off for the latest Forbes Australia list — as the value of his coal and iron ore assets fell.
Mr Forrest, the Fortescue Metals founder, dropped from fifth to tenth on the list, as his net worth shrunk by $US2.1 billion to $US5 billion.
Originally published as Fortescue cuts costs, stays profitable

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