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https://thewest.com.au/business/min...d-to-feed-hungry-chinese-mills-ng-b881781080z

Dollar, blowout threaten to rein Fortescue Metals Group profits

Sean SmithThe West Australian
Thu, 28 January 2021 8:47AM
Sean Smith

Growing cost pressures threaten to rein in Fortescue Metals Group’s record profit run as the iron ore miner deals with a higher Australian dollar and a likely blowout on its $US2.6 billion ($3.4b) Iron Bridge magnetite project.

Following media reports the development bill for Iron Bridge is under pressure, FMG revealed today it was undertaking a detailed review of the project’s budget and schedule that would take into account the strength of the dollar, access to skilled labour and COVID-19 impacts.

Iron Bridge, 145km south of Port Hedland, is a joint venture between FMG and Taiwan’s Formosa Steel and scheduled to enter production in mid-2022.

The stronger dollar also stands to crimp second-half earnings from FMG’s operations, which shipped a bumper 46.1 million tonnes of iron ore at a production cost of $US12.81/t to customers in the December quarter to round out a record first half.

FMG has maintained its second-half cost guidance at between $US13/t and $US13.50/t, based on a US-Australian exchange rate of $US70¢.
However, the dollar is considerably higher, trading near $US77¢ so far in 2021.
It is near US76.2¢ today.


The group is riding record demand for iron ore from Chinese steel mills on the back of government stimulus programs commissioned by Beijing to reinvigorate the economy after COVID-19.
Its December quarter shipments pushed deliveries in the first six months of the financial year to 90.7mt — 2 per cent better than the first half of the previous year.
The miner collected average revenue of $US122 a tonne for the quarter, or about 91 per cent of the Platts benchmark for iron ore with 62 per cent iron content.

Chief executive Elizabeth Gaines said the shipments capped a strong quarter for the miner, which also celebrated first ore production at its new $1.7 billion Eliwana mine near Tom Price.
“In December 2020 we celebrated the significant milestones of the first ore processed and commissioning train at the Eliwana mine,” she said.
“Delivery of this strategically important project in line with schedule at an industry-low capital intensity was a remarkable effort by the Fortescue team considering the impact of COVID-19 restrictions.”

Shares in the company were down 94¢ off at $22.74 at 11.50am.

FMG is expected to post a record first-half profit of about $US4b when its reports its results next month, supporting the payment of a bumper dividend of about $1.40 a share to investors.