Iron Ore

Fortescue's record production hit by high costs and weak iron ore prices

Thu 27 Oct 22, 12:46pm (AEST)
Iron Ore 2 Mining Port
Source: iStock

Key Points

  • Fortescue's export volumes hit an all-time high for the September quarter
  • Costs including diesel and labour remain elevated, likely to dent its financial performance
  • The long awaited Iron Bridge project is scheduled to come online in the March quarter 2023

Fortescue (ASX: FMG) kicks off FY23 with a mixed update as record first quarter iron ore shipments were offset by higher costs and lower spot prices. The company's shares are trading flat around noon.

"In a strong start to FY23, mining, processing, rail and shipping combined to deliver record first quarter iron ore shipments of 47.5m tonnes," Fortescue said in a statement, adding that this "reflects strong operating performance across the supply chain and available inventory."

The solid operational performance was overshadowed by a rise in costs to US$17.69 a tonne, up 3% compared to the June quarter and 16% higher than a year ago as higher input costs and labour rates offset the benefits of a lower Australian dollar.

Fortescue's average realised iron ore price was US$87 a tonne in the first quarter, reflecting 85% of the average Platts 62% CFR Index. The company producers a lower grade iron ore that trades at a discount to benchmark prices.

Still, Fortescue reaffirmed its FY23 guidance for shipments, costs and capital expenditure:

  • Iron ore shipments: 187m to 192m tonnes

  • C1 costs: US$18.00 to US$18.75 a tonne

  • Capital expenditure: US$2.7bn to US$3.1bn (excluding Fortescue Futures Industries)

  • FFI expenditure: US$500 to US$600m of operating expenditure and US$230m of capital expenditure

The guidance is based on an assumed FY23 average exchange rate of AUD:USD 0.70. The exchange rate has been sub 70 cents late August and currently 64.8 cents.

Iron Bridge scheduled to come online

Fortescue expects the high grade Iron Bridge Magnetite Project to hit production status in the March 2023 quarter. The project has been fraught with delays and ballooning costs since January 2021.

Fortescue's FY23 guidance expects to see a 1m tonne contribution from Iron Bridge.

The project is expected to deliver 22m tonnes of high grade 67% Fe magnetite concentrate.

To add some perspective, Champion Iron (ASX: CIA) produces a high grade 66.1% grade Fe product. Its average selling price for the September quarter was US$107.6 a tonne.

Fortescue Metals Group Ltd (ASX FMG) Share Price - Market Index
Fortescue share price chart

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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