No tax for us, says fortified Fortescue
FORTESCUE Metals says it is more convinced than ever that it will not have to pay any mining tax, despite the price of iron ore continuing its strong run.
Announcing a first-half net profit of $US478 million, chief financial officer Stephen Pearce said the design of the federal 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, adding that he was confident of his prediction having seen the tax operate over the past nine months.
Fortescue painted a bullish picture on iron ore demand, especially from its biggest customer, China. This is despite an alarming fall in iron ore prices to as low as $US86 a tonne in September, which contributed to a 40 per cent fall in Fortescue's reported profit, down from $US801 million, despite record production. Revenue was $US3.3 billion, down from $US3.35 billion in the previous corresponding period.
Fortescue also took the drastic action of scrapping its interim dividend, blaming its hefty capital commitments. It said it would look to establish a fixed dividend payout ratio to guarantee investors share in profits, but disappointed investors dragged the shares down 26¢, or 5 per cent, to $4.92 on Wednesday.
The sharp fall in commodity prices last year pushed Fortescue to the brink, and its shares fell as low as $2.81 before recovering sharply. Iron ore prices, at the mercy of buying and selling by China's largely state-owned network of steel mills, have rebounded strongly in recent months, buoyed by increased confidence in the steel sector after 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.
"It has recovered more strongly than we had anticipated," Fortescue chief executive Nev Power said. "There is a very significant increased confidence in China to continue its urbanisation and infrastructure build and that's restarted a lot of construction activity in China."
Mr Power said he expected iron ore prices to settle around $US120 or $US130 a tonne in the next year or so, providing a comfortable profit margin as the miner expands production to 155 million tonnes a year by the end of the 2012.