By Peter Ker
Fortescue Metal shares advanced after the company raised its net profit by 53 per cent even as iron ore prices slumped.
Full-year net profit came in at $US1.56 billion and built on the $800 million profit posted for the first half. The result topped the $US1.487 billion predicted by analysts.
Net profit for the six months to June rose to $US758 million from $US705 million a year earlier, as calculated by Reuters off full-year figures. Analysts had expected a second-half profit of $US716 million, according to Thomson Reuters I/B/E/S.
Fortescue shares ended the day up 9 cents, or 2.2 per cent, to $4.24.
The company, controlled by billionaire Andrew 'Twiggy' Forrest, will pay a 4-cent final dividend, adding to the interim dividend of 4 cents. Fortescue's 8 cent full-year dividend was up from the 7 cents paid for the previous financial year - the first time the company had returned cash to shareholders.
Fortescue will increasingly have to rely upon bigger volumes of exports to make sure its profits stay high, given that iron ore prices are already significantly lower than last year.
The benchmark iron ore price was down to $US104 per tonne this morning, more than 40 per cent lower than last year's record highs around $US190 per tonne.
Outlook
Fortescue expects iron ore prices to rise back to $US120 to $US150 per tonne in the short to medium term as Chinese demand returns, its chief executive said.
Nev Power's comments come as iron ore prices have sunk to their lowest levels since December 2009 on worries about Chinese growth.
"China is still growing at 7-8 per cent and we see no change in the fundamentals of that," Mr Power told a media conference call.
"In the short term we have see an over-run of steel supply capacity, and that has driven a reduction in steel price," he said. "We expect to see iron ore prices return to the $US120 to $US150 range in short term to medium."
Fortescue plans to have increased its export capacity to 155 million tonnes per year by June 2013. BHP boss Marius Kloppers yesterday gave a down-beat view yesterday.
“We probably don't see really dramatic price movements in iron ore to the upside,” Mr Klopper said.
More to come
BusinessDay with Reuters