Fortescue reports record FY25 iron ore shipments, shares rally on strong FY26 guidance

Fortescue (ASX: FMG) has capped off an operationally strong year, with record iron ore shipments of 198 million tonnes, beating guidance expectations while delivering better-than-expected cost reductions that boosted cash flows and strengthened the miner's balance sheet.

Strong Operational Performance Beats Expectations

The June quarter results exceeded consensus expectations, across most key metrics. Iron ore shipments of 55.2 million tonnes topped estimates of 54.1 million tonnes, while hematite C1 costs came in at US$16.29 per wet metric tonne, well-below consensus of US$18.10 per tonne.

Key June Quarter Metrics:

• Iron ore shipments: 55.2Mt (vs 54.1Mt estimates, +2.1% beat)

• Ore mined: 64.3Mwmt (vs 61.1Mwmt estimates, +5.2% beat)

• Hematite C1 cost: US$16.29/wmt (vs US$18.1/wmt estimates, 10.3% improvement)

• Cash generation: US$1.1 billion for the quarter

Balance Sheet Strength Improves

Fortescue's financial position strengthened considerably during the quarter, notably:

• Cash balance up to US$4.3 billion (from US$3.3 billion in the March quarter)

• Gross debt slightly lower to US$5.4 billion (from US$5.5 billion in the March quarter)

• Net debt down to US$1.1 billion (from US$2.1 billion in the March quarter)

To add some perspective, Macquarie expected Fortescue to close at FY25 with US$3.97 billion cash and a net debt position of $1.17 billion. This suggests the actual cash and net debt figures are 8.3% and 6.0% better than their estimates.

Upgraded Guidance Signals Continued Growth

Management raised FY26 guidance across several key metrics, reflecting confidence in operational momentum. Iron ore shipments are now expected to reach 195-205 million tonnes, up from the previous range of 190-200 million tonnes.

FY26 Guidance Updates:

• Iron ore shipments: 195-205Mt (vs prior 190-200Mt, +2.6% at midpoint)

• Iron Bridge contribution: 10-12Mt (vs prior 5-9Mt, +57% at midpoint)

• Hematite C1 costs: US$17.50-18.50/wmt (vs prior US$18.50-19.75/wmt, 5.9% improvement)

• Metals capex: US$3.3-4.0bn (vs prior US$3.5-3.8bn)

• Energy capex: US$300m (vs prior US$400m, 25% reduction)

The Iron Bridge magnetite project continues its staged ramp-up, with nameplate capacity of 22Mt per annum expected by FY28.

Green Iron Strategy Gains Momentum

Chief Executive Dino Otranto highlighted strong bilateral support for green iron initiatives following recent discussions in China. The company sees significant opportunities in developing a green iron and steel supply chain that could drive investment while eliminating emissions.

"Having returned from China last week, it's clear there is strong support from both Australia and China to collaborate on a green iron and steel supply chain which would drive investment, strengthen trade ties and eliminate emissions at scale," Otranto said.

Analyst Takeaways

RBC Capital Markets analyst Kaan Peker expects a positive market reaction, citing the stronger-than-expected quarterly result and improved cost guidance. The flat-to-declining capital expenditure guidance is likely to be viewed favourably by investors focused on capital discipline.

Peker noted that the standout performance was driven by strong shipment volumes and exceptional cost control, with hematite C1 costs coming in at the bottom end of guidance ranges. The quarterly cash generation of US$1.1 billion also exceeded expectations.

RBC retains an Outperform rating on Fortescue, with a $19.00 target price.