Fortescue Metals Group Ltd (ASX: FMG) is an iron ore miner. Fortescue Metals produces 170 million tonnes of iron ore per annum, making it one of the largest global iron ore producers. Fortescue Metals has a market capitalisation of A$34 billion.

What are the key points of Fortescue Metals quarterly report?

Fortescue Metals reported March quarter 2020 iron ore shipments of 42.3 million tonnes, up 10% compared with March quarter 2019 and C1 costs of US$13.27/wet metric tonne (wmt), down 2% compared with March quarter 2019 costs of US$13.51/wmt. Continued strong demand for iron ore allowed a delivered average revenue of US$73/dry metric tonne (dmt). Free cashflow generation resulted in cash on hand of US$4.2 billion at 31 March 2020 and net cash of US$0.1 billion, compared to net debt of US$2.9 billion at 31 March 2019.

The most important point for this quarterly report is that demand for iron ore from China remains strong despite concerns around COVID-19. In addition, Fortescue Metals management notes that it is anticipated China will make a steady recovery in economic activity.

Regarding Fortescue Metals response to COVID-19, the company has implemented a range of strategies. Firstly, the company has expanded a range of measures to protect the health and safety of the employees. This includes site operational roster being temporarily extended from a two week on/one week off roster to a four week on/two week off roster which has reduced people movement by approximately 40 per cent. In addition, Fortescue Metals has delivered a A$1 million donation to the Royal Flying Doctor Service and distributing over 1,300 care packages to Aboriginal communities in the Pilbara. In addition, Fortescue has supported the Minderoo Foundation in procuring and distributing A$160 million of lifesaving medical supplies and equipment to the West Australian healthcare sector.

What is the outlook for Fortescue Metals?

The outlook for Fortescue Metals is positive. Fortescue Metals announced today (30 April 2020) in the company’s report they FY20 guidance has been upgraded to iron ore shipments of 175 – 177 million tonnes (originally 170 – 175 million tonnes). C1 cost guidance for FY20 is US$12.75 – US$13.25/wmt. Total capital expenditure revised to US$2.0 – US$2.2 billion (previously US$2.4 billion), reflecting the timing of expected payments on growth projects.

In addition to Fortescue Metals strong operational performance, Fortescue Metals has a strong balance sheet with US$4.2 billion cash on hand at 31 March 2020 (US$3.3 billion at 31 December 2019). This includes US$1.6 billion reserved for the FY20 interim dividend, which was paid on 6 April 2020. Gross debt remained at US$4.0 billion at 31 March 2020, resulting in a net cash position of US$0.1 billion, compared with net debt of US$2.9 billion at 31 March 2019. Total capital expenditure year-to-date is US$1.3 billion.

What is the market reaction?

The market reaction to Fortescue Metals quarterly activities report is positive. Fortescue Metals share price is up 4% and is currently trading at A$12.21. Fortescue Metals has a forward P/E ratio of around 5x and has an annual dividend yield of 9%.

 


 

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April 30, 2020