FMG all but shelves TPI sale

The urgency that once accompanied Fortescue’s planned sale of its Pilbara infrastructure seems to abate by the day.

An uptick in iron ore prices accompanied by the drop in the Australian dollar has seen cash flooding into Fortescue’s (FMG) coffers in recent months, a sudden turnaround from the emergency conditions that prevailed late last year when iron ore prices crashed.

Fortescue’s break-even price is $US70 a tonne, according to the results released this morning, and with iron ore spot prices punching towards $US140 a tonne FMG founder Andrew Forrest clearly is in no mind to be captive to an outside owner of the infrastructure.

The mooted $3 billion sale was pushed back several months ago, as ore prices recovered. Reading between the lines of this morning’s statement, it seems the price has been raised.

The sale was considered essential to lighten the company’s massive debt load (see Tim Treadgold's High costs tarnish Fortescue's appeal) and the company obviously is mindful that those concerns weigh on shareholders. Hence its reluctance to officially shelve the proposed sale despite the obvious conclusion that it will never take place.

Fortescue delivered a result that was better than expected with net earnings up 12% at $1.7 billion despite the sudden drop in ore prices during the period.

Prices averaged $US114 versus $US131 a tonne in the previous year. But this was offset by a massive lift in production and shipments and a 9% cut in costs on lower production costs, better strip ratios and efficiencies.

The improved cash flow and its growing reserves have allowed a 10c dividend and the company envisages moving to a 30% payout ratio, which would put the stock firmly in sights of yield hunters.