By Rhiannon Hoyle
SYDNEY--Fortescue Metals Group Ltd. (FMG.AU) Thursday reported a
53% rise in full-year net profit, but saw its debt pile swell to
US$8.5 billion as it presses on with plans to triple iron ore
output in Australia's Pilbara region despite slumping commodity
prices.
Fortescue is facing a challenge from weakening Chinese demand
for steelmaking materials, which has driven the price of iron ore
down to a two-and-a-half-year low and prompted peers such as BHP
Billiton Ltd. (BHP) to delay approvals for multibillion dollar
investments nearby that would enable vastly higher exports from the
Pilbara.
Falling iron ore prices have also triggered concerns that
Fortescue may again need to tap debt markets soon, potentially to
plug a multi-billion-dollar funding gap as it ramps up spending to
expand annual iron ore production in the Pilbara to 155 million
metric tons by mid-2013.
Fortescue, which has grown from a tiny explorer to become the
world's fourth-largest iron ore producer by volume within a decade
by developing deposits overlooked by peers like BHP, said net
profit for the year to June 30 totaled US$1.56 billion compared
with US$1.02 billion a year earlier.
That was ahead of an average US$1.43 billion estimate from five
analysts' forecasts compiled by Dow Jones Newswires.
Perth-based Fortescue cited increased production volumes as the
main reason for the profit growth. The company's revenue was up 23%
at US$6.68 billion.
"A key feature [behind the rise in earnings] was the outstanding
operational performance, achieved within an environment of major
construction works across all mine, port and rail sites," Chief
Executive Nev Power said in a statement to the Australian
Securities Exchange.
The company's borrowings and financial liabilities at the year
end rose 75% to US$8.5 billion as it tapped debt markets for
funding to expand its mines, which include Christmas Creek.
Earlier this month, the company said it had secured an extra
US$1.5 billion in loans and credit to help fund the expansion of
operations in Western Australia. The move to tap debt markets came
after the company said the capital required to achieve its
expansion targets would likely be close to US$9 billion,
outstripping a previous US$8.4 billion forecast.
Fortescue shipped a record 17.8 million tons of iron ore in the
March-June period, up 42% on volumes just three months earlier when
operations were hit by heavy rain.
Analysts say Fortescue's stock is likely to take its cue more
from swings in iron ore prices than the company's production
growth, as the miner is highly geared to overseas demand and
doesn't have any exposure to other commodities.
The iron ore price fell to US$104.70 a ton Wednesday, its lowest
level since December 2009. The price is down 24% year-to-date amid
weak demand from Chinese steel mills.
"With the spot price having broken the US$118 a ton resistance
level and currently grinding lower day-by-day, jitters about
Fortescue's substantial debt burden will grow the longer price
weakness remains," Credit Suisse analyst Matthew Hope said.
Fortescue announced a final dividend of 4 Australian cents a
share, taking the total for the year to 8 cents a share. Credit
Suisse earlier this week forecast a total annual dividend of 9
cents a share.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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