Fortescue Metals Group Ltd

FMG Details

Fortescue Metals Group Ltd (ASX: FMG) deals in the business of exploration as well as development, production, processing, and sale of iron ore. FMG is a global leader in the iron ore industry, and it exports 175 to 180 million tonnes of iron ore annually (mtpa).

FY21 Result Performance (For the Period Ended 30 June 2021)

• The company has recorded 74% YoY growth in revenue to US$22.3 billion in FY21 supported by a 2% increase in ore sold to 181.1 million tonnes (mt) and the benefit of 72% growth in average realised price to US$135 per dry metric tonne (dmt).
• Underlying EBITDA rose 96% YoY to US$16.4 billion and the underlying EBITDA margin rose to 73% supported by the benefits of higher revenue and disciplined cost management.
• NPAT increased significantly by 117% YoY to US$10.3 billion and earnings per share rose to US$3.35 (A$4.48).
• The company has declared a fully franked final dividend of A$2.11 per share that takes the overall dividend for FY21 to A$3.58 per share.

Consolidated Income Statement (Source: Company Reports)

Mineral Resources and Ore Reserves Update

The company has more than 2 billion tonnes of hematite ore reserves and 13.6 billion tonnes of hematite mineral resources as of 30 June 2021.

Development Projects: The iron bridge magnetite project is under the development phase with magnetite ore reserves of 716 million tonnes and mineral resources of 5.4 billion tonnes that remain unchanged. The Iron Bridge project will provide 22 mtpa of a 67% Fe magnetite concentrate. The production is expected to start by December 2022. Besides, the exploration drilling work continue across its tenements in the Pilbara.

Outlook

The iron ore price continues to remain volatile, and it fell below US$130/t low point recorded in mid-August. However, the mining companies still reported strong cash flows and at the spot prices FCF yields for the leading miners are estimated in double-digits. This is evident from FMG’s free cash flow that has improved significantly in the recent years as it improved to US$8,961 million in FY21 compared to US$704 million in FY18, FMG holds a healthy cash on hand of US$6.9 billion and net cash of US$2.7 billion at 30 June 2021.

While the iron ore price might remain subdued for some time,  FMG is enjoying the benefit of its integrated operations along with its marketing strategy that is enabling the company to swiftly adapt and respond to market conditions, thereby, reinforcing its strong market penetration in China and in other countries. It also boasts as a core and low-cost supplier of seaborne iron ore to China. This assists the company in frequently  engaging  with its customers and key stakeholders in China as majority of its products are sold to long-term customers in China.

Besides, the company has also expanded into other markets like Japan and South Korea and is in constant pursuit of opportunities in markets in South- East Asia.

As per the China’s National Bureau of Statistics, the country’s crude steel production declined by 13.2% pcp in August. It is anticipated that these restrictions might remain through the end of this year as major provinces target to reduce emissions to combat the impact from the climate change.

Guidance

The company estimates its iron ore shipments to remain between 180 - 185 million tonnes in FY22. Further, it forecasts C1 cost for FY22 to stay between US$15.00 - US$15.50/wmt and its capital expenditure (excluding FFI) to remain in the range of US$2.8 - US$3.2 billion that includes sustaining and development capital as well as major projects and exploration.

The company is confident of delivering continued strong results driven by a solid kick start to FY22 as well as through operational excellence, continued emphasis on productivity, and disciplined approach to capital allocation. Further, FMG is investing in the growth of its iron ore operations along with chasing ambitious global prospects in renewable energy and green industries through the Iron Bridge Magnetite project and Fortescue Future Industries.

Meanwhile, the stock price of FMG ended the session at A$15.27, down by 11.479% on 17^th September 2021.

The risk levels are high and investors might want to re-evaluate their positions accordingly.

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