FMG CFO Elizabeth Gaines outlines her strategy for iron ore's 'third force'
by
Tess Ingram
The days of Andrew Forrest's bold debt-fuelled strategy for Fortescue Metals Group might be over, with the company's new chief financial officer, Elizabeth Gaines, signalling she is willing to move the company into a net cash position as it seeks to balance investment and shareholder returns.
In her first interview since
stepping into the role in early February, Ms Gaines told The Australian Financial Review she doesn't plan to make any "sudden changes" to the mining company's strategy, which has seen it take advantage of higher than expected iron ore prices to dramatically reduce debt.
The former Helloworld chief executive has been on the Fortescue board as a non-executive director, and a member of its audit and risk management committee and finance committee, since 2013.
"I think that unique position of coming from the board and being part of that strategy means coming into the role I don't think it is about making any sudden changes because we have been on a very deliberate path for some time now," Ms Gaines said.
"We have certainly always said we want to repay debt so we can get the gearing down and that is certainly part of the strategy but it is broader than that as well.
"It tends to be a number of different limbs to that overall strategy around debt management, investing in our core business for the long term, looking at low-cost growth opportunities and then returns to shareholders."
Debt tracking down
Ms Gaines joins Fortescue's executive team in the wake of a significant improvement in its financial health over the past four years.
It has achieved a long-pursued 40 per cent gross gearing target and last week
repaid another $US1 billion of debt, knocking its gross debt to $US4.2 billion, a far cry from its peak of $US12.7 billion in 2013.
But Ms Gaines' time in the chief financial officer role will not come without its own challenges, with Fortescue the subject of close market scrutiny as it considers how to spend its growing pile of cash.
The $19 billion company had $US1.2 billion cash on hand at the half year, within its target "liquidity balance" of between $US1 billion to $US1.5 billion.
Ms Gaines says Fortescue does not have a new gearing target but debt reduction will remain a priority, to the extent the company could find itself in a net cash position, where it has more cash than borrowings.
Analysts have tipped the company could enter a net cash phase as early as next financial year if the strength in iron ore prices continues.
"I don't think we are adverse to that concept but there other priorities for cash as well as we move forward so again it is a balance amongst the various parts of our overall strategies," she said.
Plans to spend
Fortescue has
flagged a $US1 billion to $US1.5 billion spend, predominantly in 2018 and 2019, to replace its Firetail mine, is spending $US556 million on eight new ships and up to $US200 million on a tug haven at Port Hedland port.
The company will also spend $US40 million this year on exploration in iron ore and as an early stage diversification effort in copper-gold in South Australia, NSW and Ecuador.
"I think when we are approaching growth opportunities it is more about low cost but opportunities that have the potential to deliver significant value," Ms Gaines said, as opposed to any large-scale acquisitions.
The iron ore price
slid to $US79.36 per tonne on Monday, its lowest level since early January after reaching as high as $US94.86 per tonne on February 21 but remains heights above the $US40 per tonne mark, which it sunk through in late 2015.
Ms Gaines said investment decisions were made after rigorous tests at a range of iron ore price scenarios but that the volatility commodity prices inflict on mining businesses is not something particularly challenging or unique to the industry.
"I think I haven't yet known a business that isn't subject to some sort of volatility, whatever that might be," she said.
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