Andrew Twiggy Forrest of Fortescue Metals. Photo: Andrew Meares
THE spectre of rising costs is starting to haunt Fortescue Metals Group, as doubts grow over its ability to deliver operating and capital expenditure within promised budgets.
Despite Fortescue announcing better-than-expected production volumes for the June quarter, the market yesterday remained fixated on the iron ore exporter's inability to control costs. That pushed the share price marginally lower at the close of trading.
Those concerns were stoked by production costs of $US53.23 ($A49.53) a tonne for the June quarter - up more than 20 per cent from the $US44.96-a-tonne cost rate from the March quarter.
Just 15 months ago its costs were less than $US30 a tonne. They have been rising steadily ever since.
Fortescue told a touring party of analysts two months ago they could expect costs of about $45 a tonne for the June quarter.
Chief financial officer Stephen Pearce blamed yesterday's blowout on a combination of the high Australian dollar, a speeding up of expansion plans and weather interruptions.
He warned there would be no relief from high cost ratios this calendar year, saying increased production in the first half of next year would be needed to deflate costs.
''It will be a challenge for us to get to that $40 to $45 mark in the immediate term but we are up to the challenge,'' he said, adding: ''We are looking at a whole heap of initiatives.''
Fortescue shares finished the day 1¢ lower at $6.41. MF Global Equities analyst Michael Worcester said the market was more focused on the cost worries than the good news on production rates. Fortescue has a plan to expand production to 155 million tonnes a year by the middle of 2013 at a cost of $8.4 billion.
Analysts have long been sceptical that the plan for $8.4 billion can be achieved amid the severe inflationary environment in Western Australia, and Mr Worcester said the budget appeared ''more and more unlikely'' in the wake of yesterday's figures.
