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.