Fortescue misses target

Iron ore miner lowers production forecast

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Iron ore miner Fortescue Metals Group (ASX:FMG) announced today that production would be lower for the 2013 financial year than originally expected.

In a statement to the market today, Fortescue announced that production is estimated to be between 80 and 82 million tonnes, down from between 82 to 84 million tonnes. The market didn’t like the news much, punishing the shares, which fell more than 6%. Any further bad news and the shares are in danger of heading past its 52-week low of $2.81.

Fortescue also reported that the level of interest generated in its sale of Pilbara infrastructure means the company has extended the evaluation period. The company reiterated that a sale would only occur at fair market value, and expects to announce a transaction, if any, in the September quarter.

Fortescue announced that its cash costs are coming down, with costs for the June quarter of between US38 and US$40 a tonne, with full year cash costs expected to be in the range of US$45 to US$50 per tonne. The company says that with the iron ore price holding between US$110 and US$130 a tonne, as it had expected, cash flows should be strong and see the company’s cash balance swell to more than US$1.7 billion at the end of June 2013.

Taking the cash into account, Fortescue expects to have a net debt position of US$10 billion at 30 June 2013, with no debt due to be repaid until November 2015. Capital expenditure is slowing after Fortescue spent US$6.3 billion this year, with 2014 expected to see just US$1.9 billion spent.

Fortescue is on target to produce 155 million tonnes of iron ore a year in 2014, and should see the company amongst the lowest cost producers in the world. Fellow Australian miners Rio Tinto Limited (ASX:RIO) and BHP Billiton (ASX:BHP) are exceptionally low cost producers, with both ramping up production of iron ore in recent years.

Foolish takeaway

Fortescue needs to generate significant cash flows to meet its debt repayments from 2015. At this stage it appears on target, although it could be hit by falling demand and lower iron ore prices, and any slip could see the company in hot water.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool writer/analyst Mike King owns shares in BHP.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »