Fortescue Metals (ASX:FMG) released its March 2015 Quarterly Production Report to the ASX on Thursday. The report detailed the company’s “relentless pursuit of sustainable cost reductions”. The challenged mining company is now projecting its breakeven price point at $US39 per tonne of iron ore. The miner previously announced its breakeven price point at US$52 per tonne, which caused a selloff of its shares. Iron ore prices have floated around US$50 recently, and even dipped below the US$50 mark. A breakdown of the cost per tonne shows that the company has significantly improved both production and labour efficiency while also consolidating mining contractors. C1 operating costs saw a major improvement, falling to US$25.9/wmt, a nine per cent improvement from the previous quarter.
Fortescue has also detailed its transition into a more balanced financial sheet position. The company has completed all expansion capital expenditure and is focusing on maximising production through its existing asset base. Capital expenditures will be limited in FY2016 and the company will not add any new production capacity. The company estimates its sustaining capital expenditure at US$330m in FY2016, or US$2/wmt. Fortescue has increased its cash balance in the March quarter to US$1.8bn, giving credit to “strong operational performance combined with the cost reductions” and the release of working capital flow. Cash balances for the company are expected to be maintained at or above US$1.5bn through the June quarter. Shares of FMG have fallen 64.10 per cent in the last 12 months and 29.38 per cent so far this year. After the announcement on Thursday, FMG jumped 8c, or 4.31 per cent, at $1.94 per share.
Author: Simon Herrmann
Apr 16, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.