fortescue profit dives despite revenue rise, page-3

FMG puts brave face on 94% slide

BARRY FITZGERALD
February 20, 2010

ANDREW Forrest's Fortescue Metals kept its Chinese customers happy in the December half by eschewing the more aggressive pricing policies of its Pilbara iron-ore competitors, BHP Billiton and Rio Tinto.

Fortescue kept the faith by selling all its iron ore at benchmark prices, and below at times. Meanwhile, BHP and Rio set out to sell as much as they could into the higher-priced spot market during the period.

Spot iron-ore prices left the $US63-a-tonne ($A70) benchmark price behind in the period by jumping to $US80 a tonne in early July and then running to as much as $US118 a tonne by the end of December.

Fortescue said it had made a strategic decision to protect its Chinese iron-ore market by selling all its output at the lower benchmark price, and below.

Fortescue's average price for sales in the December half fell from $US71.65 to $US57.22 a tonne. Sales into the spot market would have improved on that average, but executive director Graeme Rowley said Fortescue had its eye on the future.

''We made every attempt to justify our position by sticking to the long-term contracts that we had agreed,'' he said.

Mr Rowley was speaking at the release in Perth of Fortescue's December-half profit.

Declared profit was down from $US760 million to $US43 million. But Fortescue said a better indication of its earnings was the $US96 million underlying profit, which compares with a profit of $US162 million in the previous corresponding period. This is after eliminating the impact of a loan-note revaluation and foreign exchange movements on borrowings.

Mr Rowley drew attention to Fortescue's production performance, which rose in the December half by 41 per cent, from 13.2 million tonnes to 18.6 million tonnes.

''By anybody's measure that is a fantastic achievement,'' he said.

''It is about preparing our business for the future and augurs well for our next reporting period as the (iron ore) price does an about-turn from its massive decreases during the global financial crisis to what we perceive now to be a very bright and significant price future.''

Fortescue is now producing at an annual rate of 42 million tonnes a year. It plans to be at an annual rate of 55 million tonnes by the end of 2010, and has an ambition to take off to 92 million tonnes a year from 2013 (previously 95 million tonnes from 2012). But how the expansion to 92 million will be funded remains uncertain.

■ Fortescue announced the appointment of Mark Barnaba as a new non-executive director yesterday. Mr Barnaba is also chair of the University of Western Australia's Business School and deputy chairman of Western Power. He is CEO of corporate advisory firm Azure Capital.



FORTESCUE
Profit $US43m-94%

EPS 0.09? -96%

Revenue $US1.18bn +17%

Dividend nil n/a