Fortescue Metals Surpasses All Expectations, Stock Hits Another Record High

Summary

• Much-awaited Q4 results of Fortescue Metals Group finally marked the presence on 30 July 2020, bringing smiles on the face of stakeholders, expecting a record revenue for FY2020.
• FMG surpassed all expectations in terms of, shipment, realised price, meeting guidance, and revenue, to demonstrate another bumper financial year with even high chances of record revenue.
• The market seems to be appreciating the recent outcome and strong performance of FY2020 with the stock clinching to another record high during the day’s session on 30 July 2020 at $17.590.

The much-awaited quarterly results of ASX-listed prominent iron ore miner- Fortescue Metals Group Ltd (ASX:FMG) finally appeared in the market on 30 July 2020, bringing smiles on the face of stakeholders, expecting a record revenue for FY2020.

FMG has registered outstanding performance and exceeded expectations, in terms of, shipment, realised price, meeting guidance, and revenue, which the market seems to be appreciating with the stock of the Company achieving another record high of $17.590 (as on 30 July 2020, 2:00 PM AEST).

To Know More, Do Read: Fortescue Metals Breaking All Records!! Here’s Why?

While our previous assumptions regarding the shipment in June 2020 quarter remained at 44.1 million tonnes, the Company reported a quarterly shipment of 47.3 million tonnes, up ~ 7.25 per cent against the estimated shipment.

• Moreover, while the assumption regarding average realised price of USD 36 per dry metric tonnes pointed towards an estimated record FY2020 revenue of USD 13,116 million, the Company has realised USD 81 per dry metric tonne, increasing the probability of hitting the estimated record revenue for FY2020.
• Furthermore, the Company surpassed the upper range of its FY2020 shipment guidance of 175-177 million tonnes with an additional 3.2 million tonnes of shipment during the June 2020 quarter at 178.2 million tonnes.

June 2020 Quarter Operational Performance

FMG shipped a record 47.3 wet million tonnes of iron ore during the June 2020 quarter, up by 2 per cent against the previous corresponding period (or pcp).

• The yearly shipment reached 178.2 wet million tonnes to remain 6 per cent higher against the previous financial year (FY2019).
• Furthermore, the Company marked a 2 per cent increase in cash cost or the C1 cost for the June 2020 quarter against pcp; however, the FY2020 C1 declined by a unit per cent against FY2019 to stand at USD 12.94 per wet metric tonne.
• Total Recordable Injury Frequency Rate (or TRIFR) reduced to 2.4 during FY2020, highlighting an improvement of 14 per cent from 2.8 in FY2019.
• The strip ratio for FY2020 remained in line with the guidance at 1.56, and the Company anticipates that it would remain the same in the current five-year mine plan, excluding the Iron Bridge Magnetite project.
• During the quarter, the autonomous haulage at the Chichester Hub achieved a significant milestone with the conversion of the 100th autonomous truck.

The Market for FMG for June 2020 Quarter

FMG suggested that crude steel production in China remained robust during the quarter.

• As per the data from China’s National Bureau of Statistics, crude steel production reached 268.9 million tonnes in the June quarter while reaching 499.0 million tonnes for the six-month ended 30 June 2020, to mark a surge of 1.4 per cent against the first half of the year 2019.

To Know More, Do Read: China Poised to Grab the Global Steel Trade as Economies Open up for Trade

• Furthermore, the Company suggested that the demand for its products remained strong while shipments continued to China and other markets. This resulted in a revenue of USD 80.64 per dry metric tonne for Q4 FY2020, representing revenue realisation of 86 per cent of the average Platts 62 per cent CFR Index of USD 93.30 per dry metric tonne.
• As on 30 June 2020, the Platts 62 per cent CFR Index closed at USD 101.05 per dry metric tonne, up by ~ 20.72 per cent against the March 2020 quarter.
• Additionally, FMG’s average revenue of USD 78.62 per dry metric tonne for FY2020 represented revenue realisation of 84 per cent of the average Platts 62 per cent CFR Index of USD 93.25 per dry metric tonne.
• Revenue per tonne surged by 21 per cent compared to FY19, higher than the 16 per cent increase in the average Platts 62 per cent CFR Index over the same period, reflecting upon improved product mix.
• FMG also suggested that its wholly owned Chinese sales entity - FMG Trading Shanghai Co. Ltd, which commenced operations in June 2019, sold 6.5 million tonnes of iron ore in FY2020 (in Renminbi or RMB) for regional ports across China.

Balance Sheet Growth and Future Guidance

Balance sheet of the Company remained structured on low-cost, investment-grade terms while maintaining flexibility and capacity for future growth.

• FMG’s gross debt surged to USD 5.1 billion (as on 30 June 2020), post the drawdown of the USD 1.0 billion revolving credit facility in April 2020.
• Net debt of the Company stood at USD 0.3 billion (as on 30 June 2020) as compared with net cash of USD 0.1 billion (as on 31 March 2020).
• Furthermore, FMG suggested that the revolving credit facility was subsequently repaid in July 2020 and the tenor was extended to July 2023, while the repayment has no impact on net debt or the liquidity position.
• Total capital expenditure during the quarter stood at USD 700 million, including sustaining capital, and major projects and exploration. The total capital expenditure for FY2020 stood at USD 2.0 billion.
• During the quarter, balance of the iron ore prepayments of USD 87 million was fully amortised.

On the future guidance, FMG further extended the FY2021 shipment guidance at the upper end of the previous range with the guidance of 175 to 180 million tonnes for FY2021.

• C1 cost guidance remained in line with FY2020 at USD 13.00 to USD 13.50 per wet metric tonne for FY2021, based upon the exchange rate of $0.70.
• Capital expenditure expectation is in the range of USD 3.0 to USD 3.4 billion for FY2021, including ~ USD 1.0 billion of sustaining, operational and hub development capital, USD 140 million on exploration expenditure and studies, and USD 1.9 to USD 2.3 billion on major projects.

The stock of the Company last traded at $17.410 (as on 31 July 2020), down by 0.798 per cent against its previous close on the exchange.

(Note: All currency in AUD unless specified otherwise)