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Fortescue aims for further cost cuts

Prashant Mehra  |  27 Jul 2017Text size  Decrease  Increase  |  

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SYDNEY - [AAP] Fortescue Metals (ASX: FMG) is targeting a further reduction in costs this financial year but expects to keep its iron ore shipments steady.

The world's fourth-largest iron ore exporter shipped 44.7 million tonnes of iron ore in the final three months of 2016/17, up 3 per cent from a year earlier, and a 13 per cent increase on a weather-impacted third quarter.

That took full year shipments to 170.4 million tonnes, just above the company's guidance of 165 million to 170 million tonnes.

Cash costs were trimmed 7 per cent from the March quarter to a record low of $US12.16 per wet metric tonne, and the full-year average of $US12.82/wmt was down 17 per cent.

Chief executive Nev Power said the Pilbara miner is well positioned to continue to improve costs, invest in the core iron ore business and maintain production levels in the 2017/18 financial year.

"We will continue the consistent and predictable performance," he told reporters.

"Capital management, further strengthening the balance sheet and generating shareholder returns remain our key priorities."

Fortescue is aiming to hold shipments steady at 170 million tonnes in 2017/18, but could trim cash costs to between $US11 and $US12 per wmt.

The miner said its iron ore realised an average $US53.27 a tonne in the June quarter, or about 77 per cent of the average benchmark price for the top grade.

Discounts between the top-grade iron ore and Fortescue's lower grades have widened in recent months, and the company expects the gap to remain while steel mill profitability and iron ore port stockpiles in China remain at current high levels.

Royal Bank of Canada analyst Paul Hissey said the lower price realisation was the sticking point of Fortescue's update, and the market may not be fully appreciating its significance.

"It may still be too early to ascertain whether this downgrade is a function of structural change in the steel industry or the result of shorter-term cyclical factors," he said in a note.

Fortescue expects to realise between 75 and 80 per cent of the benchmark price in 2017/18, but said realisations will remain near the bottom of this range in the first half of the fiscal year.

Fortescue shares were down 3 cents at $5.27 nearing the end of Thursday's trading session.


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