No tax for us, says fortified Fortescue
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.
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Fortescue’s CFO Stephen Pearce said the company is more convinced than ever it will not pay the minerals resource rent tax (MRRT). He pointed to the tax’s design that allows build-up of capital shelters or tax credits and said Fortescue hasn’t seen the tax apply to them over the past nine months, so they don’t anticipate paying MRRT under expected iron ore price scenarios.
Fortescue reported a first-half net profit of US$478 million and revenue of US$3.3 billion, down from US$801 million profit and US$3.35 billion revenue in the previous corresponding period. The profit decline was about 40%, despite record production, largely driven by lower iron ore prices.
Fortescue cancelled its interim dividend because of hefty capital commitments. Management said it plans to look at establishing a fixed dividend payout ratio to share profits with investors in the future, but the immediate scrapping disappointed investors and hurt the share price.
Investors reacted negatively: Fortescue shares fell 26 cents, or 5%, to $4.92 on the day the interim dividend was scrapped. The article also notes the company’s shares had previously fallen as low as $2.81 before a recovery.
Fortescue painted a bullish picture for iron ore demand, particularly from China, its biggest customer. Management said increased confidence in China’s urbanisation and infrastructure build has restarted construction activity and supported stronger demand for iron ore.
Iron ore prices fell as low as US$86 a tonne in September, contributing to a fall in Fortescue’s profit. They then rebounded strongly — the benchmark price rose 37% over the past three months to trade around US$158 a tonne. CEO Nev Power said he expects prices to settle around US$120–US$130 a tonne over the next year or so.
Nev Power said expected iron ore prices of about US$120–US$130 a tonne would provide a comfortable profit margin as Fortescue expands production to 155 million tonnes a year by the end of 2012, supporting the company’s growth plans.
The main driver of the profit decline was the sharp fall in commodity prices last year — iron ore dropped to around US$86 a tonne — which reduced revenue and pushed reported profit down by about 40% even though production was at record levels.
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