Fortescue first-half profit soars

Fortescue Metals Group (FMG) has unveiled a significantly stronger first-half profit as the miner reaps the benefits of expanded operational capacity, improved product strategy and continued focus on reducing costs, notably capital expenditure.

In the six months to December 31, Fortescue posted a net profit of $US1.714 billion, a 259% increase on the $US478 million recorded in previous corresponding period.

In the same period revenue was $US5.873 billion, a 77% jump on the previous corresponding period's $US3.324 billion.

The group will pay a fully-franked interim dividend of 10 Australian cents on April 2, to shareholders on the register at March 5.

Cashflows from operations for the half were $US3.6 billion, significantly higher than the $US500 million posted in the previous corresponding period.

The miner said this this amount included receipts from iron ore prepayments of $US712 million and Formosa Port access prepayments of $US500 million.

Costs, capex reduce in first-half

Fortescue said its C1 costs decreased 34% in the period to $US33 per wet metric tonne, driven by cost improvement initiatives and a lower Australian dollar.

Based on an Australian dollar exchange rate of 90 US cents Fortescue expects C1 costs for fiscal 2014 to be $US34 per wet metric tonne.

Capital expenditure was cut substantially during the period, decreasing by $US3.1 billion to $US1.4 billion.

"As the expansion projects near completion capital expenditure will continue to decline and is expected to total $US2.1 billion in fiscal 2014," the miner said.

This would be a $US4.1 billion reduction on capital expenditure in fiscal 2013 of $US6.2 billion.

"As previously announced, additional engineering and material handling modifications, finalisation of contractor payments and commissioning costs for Kings are forecast to increase the total capital expenditure associated with the 155mtpa expansion to $US9.2 billion," the miner said.

Fortescue's balance sheet was also benefited by its early repayment of debt. The miner said total debt repayments since November came to $US3.1 billion, with the repricing
of of its term loan set to deliver interest savings of approximately $US300 million per annum.

"The combination of voluntary debt repayments and term loan re-pricing provide significant benefits to the overall cost structure, strengthening our balance sheet, increasing confidence
in the outlook and our ability to generate shareholder returns," Fortescue chief financial officer Stephen Pearce said.

The miner said full-year shipments are estimated to be 127 metric tonnes, but remain sensitive to weather, while the delivery of the 155 metric tonnes per annum run rate remains on target for the end of March despite significant rainfall during January and February.