Fortescue misses target

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.