Transcription of Finance News Network Interview with Fortescue Metals Group Limited (ASX:FMG) CEO Nev Power
Lelde Smits: Hello, I’m Lelde Smits for Australia’s Finance News Network and joining me from Australia’s biggest pure-play iron ore producer Fortescue Metals Group Limited (ASX:FMG) is its CEO, Nev Power. Nev, great to be with you at the company’s Perth headquarters.
Nev Power: Good to be here, thank you.
Lelde Smits: It's been a busy few months for Fortescue with a record annual net profit and dividend, overseas cash injection and a series of expansion milestones but what has been your highlight?
Nev Power: Certainly the full year results were an absolute highlight for us as a company. 81 million tonnes of iron ore shipped for the year is a record shipment of iron ore. And, $1.7 billion in net profit after tax, another record for us. And, that resulted in a very significant milestone for the company.
Lelde Smits: Fortescue has been targeting a production rate of 155 million tonnes per annum by the end of this year. How will you realise value for shareholders into next year?
Nev Power: Lelde, we’re looking to achieve 155 million tonnes per annum by the end of December [2013] and be doing that sustainably by the end of March next year. That will allow us to generate the cash in order to pay down our debt. So, the next couple of years for us is to reduce our debt and push our gearing down. That will have the company re-rate and improve the sustainability and reduce the debt cost for the business.
Lelde Smits: You mention debt - Fortescue’s debt load has many inventors wary about the company’s balance sheet. What is your current debt position and what is your strategy and timeline for reducing it?
Nev Power: We’ve used debt to fund our expansion and now that the expansion is coming to completion we’re going to reduce our debt from the peak of where it is today, around $12 billion with a net of $10 billion. And, our plan is to take around $4-$5 billion off that debt over the next couple of years.
Lelde Smits: Fortescue inked a $US1 billion joint venture with Taiwan’s Formosa Plastics Group last month. Why is this an important deal for the company and when are you expecting to receive regulatory approval for the transaction?
Nev Power: We are very happy with Formosa as a partnership and it allows us to develop the magnetite assets which are currently not valued on our books at all. We expect to see regulatory approval for this by the end of September which will allow us to start stage one of the project.
Lelde Smits: When we last spoke six months ago you were aiming to finalise selling a stake in your wholly owned rail and port network, The Pilbara Infrastructure, by mid this year. What has delayed the process and is a sale still on the cards?
Nev Power: We have been through a process and we are still continuing with that process to sell a minority interest in our infrastructure to release value from those world class assets that we have.
As we’ve always said, there is no necessity for us to do this deal. So, we would only do it on the basis that we get full long-term value and on the terms and conditions that would allow us to continue to operate the infrastructure and to expand it as the business needs grow.
Lelde Smits: Fortescue’s infrastructure options do have a few companies hot on your tail. Are you open to allowing third party access on your network and what kind of deal would you prefer?
Nev Power: As we’ve stated a number of times, we think that a commercial negotiated deal is the best way to go and will result in a sustainable long term deal for both us and those that are looking for infrastructure.
We’ve had a long term deal now with BC Iron Limited (ASX:BCI) and we’ve exported over 11 million tones of third party ore through our rail and port infrastructure. So, by far the best deal is one that is negotiated on a commercial basis so that both companies are able to win from the solution.
Lelde Smits: If we can touch now on policy, newly elected Prime Minister Tony Abbott has declared Australia, “once again open for business” and promised to repeal Labor’s mining and carbon taxes. What impact, if any, would axing the carbon tax have on Fortescue?
Nev Power: Well, it will reduce our costs overall because the carbon tax is pervasive right through the entire economy and has increased input costs right across the board. But, it’s not an enormous impact to us. But, I think the biggest issue with the carbon tax is the unintended consequences and the stifling of other growth areas in the economy. So we’re very pleased to see it go.
Lelde Smits: Fortescue’s founder Andrew Forrest has been very vocal in his opposition to the mining tax [Minerals Resource Rent Tax (MRRT)], and though his High Court challenge was recently dismissed now we have a new government how optimistic are you that the mining tax could also be on its way out?
Nev Power: We’re confident that this government, the new government that is, will stand by the promises they made and repeal the MRRT.
Lelde Smits: But in your latest full year financial accounts Fortescue paid no mining tax, what impact does it have on the company?
Nev Power: That’s correct Lelde, but what we did pay was we paid over $1 billion this year in taxes and state royalties. And, as we expand to 155 million tonnes that figure will increase to over $2 billion a year. So we’re certainly paying a very large share of tax and royalties into the state and federal systems.
Lelde Smits: Past Prime Minister Kevin Rudd called the end of the mining boom but newly elected Prime Minister Tony Abbott has vowed to reboot it. Do you believe mining investment in Australia has peaked and if so what must the new government do in order to ensure the industry continues to grow?
Nev Power: I think there’s been a very large amount of mining investment and now what we’re seeing is the production phase that follows that investment. From our own perspective the jobs that we’re created through the construction phase are now being replaced by jobs that are there long term, permanent jobs in the operations phase.
And, we’re now entering that phase where we’re earning high amounts of revenue and will be paying increased taxes and increased royalties and that money will be distributed through the economy generally. So, from our perspective we’re just entering the boom phase, which is the boom in our production.
Lelde Smits: Nev Power, thank you for the update to Fortescue Metals Group.
Nev Power: Thank you Lelde.
Ends
FMG Price at posting:
$4.59 Sentiment: None Disclosure: Held
(20min delay)