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Business Description: Fortescue Metals Group Ltd (FMG, formerly Allied Mining & Processing Limited) is an iron ore production and exploration company with assets located in Western Australia.
Strategy Analysis: FMG's goal is to become the lowest cost iron ore miner in the Pilbara region of WA. From an initial base of 40Mt a year, FMG expanded to 55Mtpa from mid 2011 with the $600m expansion of Christmas Creek and Cloudbreak. The next planned step is to 155Mtpa at a cost of US$8.4bn. This excludes the new mining fleet which will cost an additional US$1.5bn. Christmas Creek will grow to 95Mt a year with first ore from 1Q13. The next 60Mt will come from the Solomon project with first ore set for 3Q13.
Fortescue Metals Group reported NPAT up 76% to US$1.02bn for the year ended 30 June 2011. Revenues from ordinary activities were US$5.44bn, up 69% from last year, primarily due to higher commodity prices. Cost of sales increased by 30% to US$2.76bn for the full year. Higher costs per tonne were driven by the total material moved (strip ratio) and the continued appreciation of the Australian dollar against the US dollar impacting the largely Australian dollar denominated cost of production. Diluted EPS was 32.83 US cents compared to 18.82 US cents last year. Net operating cash flow was US$2.78bn compared to US$1.29bn last year. The final dividend declared was 4 AU cents, taking the full year dividend to 7 AU cents compared with nil last year.
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