WA iron ore producer Fortescue Metals Group has revealed record net earnings of US$801 million for the December 2011 half year after inking a memorandum of understanding (MOU) and paying A$25 million for a 13-month exclusive option to develop and mine Iron Ore Holdings’ neighbouring Iron Valley project in WA’s Pilbara.
The net profit after tax of US$801 million is a 155 per cent surge on that same period in 2010, while earnings before interest, tax depreciation and amortisation (EBITDA) grew 33 per cent to reach US$1.51 billion.
Strong shipping volumes of 27.1 million tonnes of iron ore and a realised average iron ore sales price of US$139 per dry metric tonne were reasons given for the record half-year profit.
Sales revenue rose from US$2.5 billion for the December 2010 half year to US$3.4 billion for the same six-month period in 2011.
“The robustness of Fortescue’s cash generation capability is clearly evident in this record earnings result with revenues of US$3.4 billion and EBITDA of just over US$1.5 billion. This was achieved despite several months of price volatility as global commodity markets sought to realign the changed macro economic conditions across Europe,” Fortescue chief financial officer Stephen Pearce said.
“Importantly, iron ore prices rebounded, highlighting the fundamental shortfall of seaborne supply against a continuing strong demand profile from developing countries,” he added.
The boost in earnings was revealed just days after the iron ore major released an ASX announcement stating it had signed an MOU with Iron Ore Holdings that created the opportunity to include the latter’s Iron Valley project
in Fortescue’s Nyidinghu development and mining program. More than 2 billion tonnes of iron ore has been identified at Nyidinghu, making the deposit a core focus for Fortescue’s expansion targeted production of more than 155mt per annum of iron ore.
Importantly, Nyidinghu is contiguous to Iron Valley and its resource extends into the Iron Ore Holdings deposit. As such, Fortescue has made a non-refundable A$25 million cash payment to Iron Ore Holdings to obtain the exclusive option on the Iron Valley tenement. If the option is exercised, Fortescue will outlay a $20 million consideration payment to Iron Ore Holdings and obtain a licence to develop the project. However, Iron Ore Holdings will retain ownership of the project and receive up to 5 per cent in royalties.
Fortescue will also pay all associated costs in developing and operating a mine on the Iron Valley project. Iron Valley has a current JORC-compliant mineral resource of 260mt of iron ore and a pre-feasibility study has confirmed the viability of a 12 to 15mtpa open-pit mine with a 15-year lifespan.
Meanwhile, Fortescue has refrained from commenting on industry rumours that TSX-listed coal miner Teck Resources may attempt to make a takeover bid for Fortescue.
Analysts quoted in Canadian news source The Globe and Mail have cast doubt on Teck’s financial ability to successfully complete such a large takeover, with Fortescue’s market capitalisation estimated at A$17 billion.
By Lorna Seatter