Fortescue has released its December 2019 quarterly production results, reporting shipments of 46.4 million tonnes (mt) and cash production costs (C1) of US$12.54 per wet metric tonne (wmt) for the quarter.

Quarterly highlights

•      Total Recordable Injury Frequency Rate (TRIFR) of 2.5, an improvement of seven per cent compared to 30 September 2019

•      Shipments of 46.4mt, nine per cent higher than Q2 FY19 bringing first half shipments to a record 88.6mt

•      C1 costs of US$12.54/wmt, four per cent lower than Q2 FY19

•      Average revenue received of US$76 per dry metric tonne (dmt), 58 per cent higher than Q2 FY19 of US$48/dmt

•      Net debt of US$0.7 billion at 31 December 2019

•      Fortescue’s wholly owned Chinese sales entity, FMG Trading Shanghai Co. Ltd has successfully ramped up, achieving 3mt of sales to date

•      Continued commitment to investment in energy infrastructure and emissions reduction

Fortescue Chief Executive Officer, Elizabeth Gaines, said “Once again, the Fortescue team has achieved outstanding results demonstrated by multiple records across the operations, including record shipments of 88.6mt during the first half of FY20, while maintaining our industry leading cost position below US$13/wmt. The key highlight for the quarter was our improved safety performance resulting in a TRIFR of 2.5 on a rolling 12-month basis.

“Excellent operational performance across all mines, rail and port was maintained during the quarter to deliver shipments of 46.4mt, a nine per cent improvement on the corresponding period last year, with C1 cost reducing to US$12.54/wmt. Customer demand across all products resulted in Fortescue’s price realisation averaging 86 per cent of the benchmark 62% CFR Index price during the quarter.

“Based on Fortescue’s strong performance in the first half, we expect shipments to be at the upper end of our guided range of 170 – 175mt and C1 cost guidance is lowered to a range of US$12.75 – US$13.25/wmt,” Ms Gaines said.

“The strength in performance across the business is delivering strong free cashflow and has resulted in net debt of US$0.7 billion at 31 December 2019. Investment in growth continues with the Eliwana and Iron Bridge projects progressing on time and budget.

“Fortescue is committed to reducing emissions, as evidenced by our Chichester Solar Gas Hybrid project announced in October 2019, as well as the Pilbara Energy Connect project which integrates transmission and generation to provide Fortescue’s stationary energy requirements in the Pilbara.

“Fortescue’s Pilbara Energy Connect is a US$700 million program of works which will allow us to leverage our existing energy infrastructure and deliver a low cost energy solution for Iron Bridge, while mitigating the need for increased diesel consumption through a hybrid solar and gas solution,” Ms Gaines said.

Production Summary

Note: Tonnage references are based on wet metric tonnes. Fortescue ships product with approximately 8–9 per cent moisture.

Operations

•      The Total Recordable Injury Frequency Rate (TRIFR) reduced to 2.5 on a rolling 12-month basis during the first half of FY20.

Fortescue remains focussed on improving safety culture and performance through its committed leadership and empowered workforce and initiatives are in place to further reduce the potential for injuries.

To support the positive mental health and wellbeing of the Fortescue team, in December 2019 more than 440 family members of Fortescue’s Pilbara-based workforce were flown to the Company’s operational sites to celebrate the festive season with loved ones.

•      Mining, processing, rail and shipping combined to achieve quarterly shipments of 46.4mt, nine per cent above Q2 FY19 and ten per cent higher than Q1 FY20. This reflects the record performance through the ore processing facilities over the quarter which was nine per cent higher than Q2 FY19, and two per cent higher than Q1 FY20. This quarter benefited from Q1 FY20 development of new mining areas, with the strip ratio slightly lower at 1.3 and the year to date strip ratio tracking at 1.5. Fortescue continues to be well positioned to deliver on its fully integrated operations and marketing strategy to meet the needs of customers.

•      C1 costs of US$12.54/wmt reduced by three per cent compared to US$12.95/wmt in Q1 FY20 reflecting strong mining and processing performance and sustained cost management.

Marketing

Crude steel production in China in 2019 reached 996 million tonnes1, 8.3 per cent higher than 2018 and the current outlook indicates continued strong demand for iron ore. In the quarter, iron ore demand was supported by low steel inventories, high levels of steel production and mill restocking. Total iron ore stocks at Chinese ports at the end of the quarter were 127 million tonnes, representing approximately 42 days of offtake, similar to the end of last quarter.

•      Sustained steel demand and low steel inventory contributed to higher steel margins in the quarter. West Pilbara Fines shipments were stable at 10 per cent of quarterly shipments, in line with guidance of 17-20mt for FY20, with sales of Fortescue’s products across all segments consistently strong during the quarter.

•      Fortescue’s average revenue was US$76/dmt in the quarter. The average price realisation was 86 per cent of the average 62% CFR Index price of US$89/dmt for the quarter. The closing Platts 62% CFR Index price at 31 December was US$92/dmt (US$93/dmt at 30 September 2019).

Total tonnes shipped by product compared to Q1 FY20 and Q2 FY19 is set out in the table below:

The US$1.275 billion Eliwana Mine and Rail Project is on schedule and budget with first ore on train due in December 2020. All key approvals have been secured with an important milestone of the grant of the Special Rail Licence in January 2020 and site work is ramping up with peak construction workforce expected to be reached by mid-year.

FY20 guidance

•      Based on the strong performance in the first half, Fortescue upgrades guidance to:

•      Shipments at the upper end of the range of 170 – 175mt

•      C1 costs in the range of US$12.75 – US$13.25/wmt (previously US$13.25 – US$13.75/wmt)

•      Average strip ratio 1.5

•      Total capital expenditure of US$2.4 billion incorporating the Pilbara Energy Connect program

•      Depreciation and amortisation of US$7.70/wmt

Official Document