https://www.copyright link/business...rule-out-improved-atlas-offer-20180726-h1366f
Fortescue won't rule out improved Atlas offer
by
Peter Ker
Fortescue Metals Group has refused to rule out an improved bid for Atlas Iron and declined to forecast the size of the price discounts that will be applied to its products in fiscal 2019.
The iron ore miner acquired 19.9 per cent of struggling Atlas in June, but appears set to be beaten to the punch by
companies linked to Gina Rinehart, whose takeover offer has been endorsed by the Atlas board.
Mrs Rinehart's companies now own 24.46 per cent of Atlas, but when asked if Fortescue had conceded defeat in the battle for control of the loss-making miner, Fortescue chief executive Elizabeth Gaines said: "All strategic options remain under consideration."
"Our economic interest of 19.9 per cent provides us a seat at the table so that allows us to continue to assess our strategic options".
The battle for Atlas has been largely related to port capacity, and Ms Gaines welcomed
WA premier Mark McGowan's recent clarificationthat Atlas no longer had priority right to develop new berths in a section of Port Hedland called South West Creek.
"We also welcome the Premier's comments that there needs to consultation with industry regarding these important infrastructure assets and we look forward to participating in that process," she said.
China's growing desire for high-grade iron ore has taken a toll on Fortescue over the past 18 months, with larger discounts being applied to its product.
Fortescue produces several products with iron content between 56 per cent and 59 per cent, and those products received an average of 64 per cent of the industry benchmark price in fiscal 2018.
That result was down from 77 per cent of the benchmark price in the previous year, and 88 per cent in fiscal 2016.
Fortescue's price realisation in fiscal 2018 was also was also slightly below the company's most recent guidance of 65 per cent, which itself had been downgraded twice in the year.
Ms Gaines declined to offer precise guidance on Fortescue's price realisation for fiscal 2019.
"That's difficult to predict," she told analysts on Thursday.
When asked if the general trajectory of price discounts would be higher or lower, Ms Gaines declined to elaborate.
"We are just focused on the things we can control," she said.
Fortescue shares slipped by 3.7 per cent despite the company shipping more iron ore than expected in the three months to June 30, and RBC analyst Paul Hissey said he was not confident the wider-than-normal price discounts would go away soon.
"Whilst current cash flow and earnings are robust our view remains cautious on the company's ability to reduce product pricing discounts in the current environment," he said in a note to clients.
Fortescue plans to introduce a new product with higher iron grades in response to the recent pricing trend, and the company
indicated in May that first shipments of its new higher-grade product would be made before June 30, 2019, albeit in small volumes.
Fortescue chief operating officer Greg Lilleyman said the introduction of the new product would not be a "high-grading" exercise; a reference to when mining companies pick out the best bits of their ore bodies, usually at the expense of the mine's longevity or unit costs.
"It is a scheduling exercise, not a high-grading exercise," said Mr Lilleyman, who added the project would not dramatically change the cut-off grades at Fortescue's mines, nor the expected lifespan of those mines.
Fortescue's production costs continued to impress, with each tonne of iron ore produced for $US12.36 in fiscal 2018, excluding costs like royalties, interest and administration.
Shaw and Partners analyst Peter O'Connor said Fortescue's recent performance on unit costs had been extraordinarily impressive.
"FMG's ratio of dirt moved per tonne of ore (stripping ratio) has increased 50 per cent over the past six quarters but costs are essentially flat ... a lot of doomsayers in the peanut gallery would be mystified by this impressive trend," he said.
