Fortescue convinced it will not have to pay mining tax
Announcing a first-half net profit of $US478 million ($463 million), the chief financial officer, Stephen Pearce, said the design of the government's Minerals Resource Rent Tax allowed the build-up of "capital shelters" or tax credits, which meant the miner was unlikely to pay any mining tax.
"Under a general considered view of where iron ore prices are heading over the next few years - no, we don't anticipate we will be paying any MRRT," Mr Pearce said.
Fortescue painted a bullish picture of iron ore demand, especially from its biggest customer, China. This is despite a steep fall in iron ore prices to as low as $US86 a tonne in September, contributing to a 40 per cent fall in Fortescue's reported profit, which was down from $US801 million, despite record levels of production. Revenue was $US3.3 billion, from $US3.35 billion in the previous corresponding period.
Fortescue also scrapped its interim dividend, blaming its capital commitments. The miner said it would look to establish a fixed dividend payout ratio to guarantee investors a share in profits but disappointed investors dragged the shares down 26¢, or 5 per cent, to $4.92 on Wednesday.
The fall in commodity prices last year pushed Fortescue's shares as low as $2.81. Iron ore prices, at the mercy of China's steel mills, have rebounded strongly in recent months, buoyed by a relatively smooth leadership transition in Beijing. The benchmark iron ore price has risen 37 per cent in the past three months and last traded at $US158 a tonne.
The chief executive of Fortescue, Nev Power, said he expected iron ore prices to settle at about $US120 or $US130 per tonne in the next year or so, providing a comfortable profit margin as the miner expands production to 155 million tonnes per year.
Frequently Asked Questions about this Article…
Fortescue’s CFO, Stephen Pearce, said the company is more convinced than ever it will not have to pay the MRRT. He pointed out the tax’s design allows Fortescue to build up "capital shelters" or tax credits, so under a considered view of future iron ore prices they don’t anticipate paying any MRRT.
Fortescue reported a first‑half net profit of US$478 million (A$463 million), down around 40% from US$801 million in the prior corresponding period. Revenue was US$3.3 billion versus US$3.35 billion a year earlier.
The main reason was a steep fall in iron ore prices—they dropped to as low as US$86 a tonne in September. Even with record production levels, the weaker commodity prices contributed to the 40% decline in reported profit.
Fortescue scrapped its interim dividend, citing capital commitments, and said it would look to establish a fixed dividend payout ratio to guarantee shareholders a share of profits. The announcement disappointed investors and the shares fell 26 cents (about 5%) to A$4.92.
Iron ore rebounded strongly after last year’s lows—benchmark iron ore rose about 37% in the past three months and last traded around US$158 a tonne. Fortescue’s CEO Nev Power expects prices to settle near US$120–130 a tonne next year, which he says would provide a comfortable profit margin as production expands.
Fortescue plans to expand production to 155 million tonnes per year. If iron ore prices remain around the CEO’s forecasted US$120–130 per tonne, higher production should help deliver stronger profit margins for the miner.
China is Fortescue’s biggest customer and a key driver of iron ore demand. The article notes prices are at the mercy of China’s steel mills, and recent price rebounds were helped by a relatively smooth leadership transition in Beijing, which supported demand.
Fortescue shares have been volatile due to swings in commodity prices. The article notes shares fell 5% on the dividend cut news to A$4.92 and had previously traded as low as A$2.81 when commodity prices dropped last year.
Call 1300 880 160
Start a chat
Schedule a call
