All eyes will be on the Fortescue Metals Group Limited (ASX: FMG) share price this morning as investors wait to see if it will break new record highs.
The miner is shaping up to be the capital return hero for the sector during the August reporting season, in my view, after it posted record quarterly shipments of iron ore and announced that it exceeded full year guidance.
The news will lift hopes that management will deliver some form of dividend or capital return surprise next month when it releases its full year profits.
Fortescue share price outperforming
The FMG share price closed at $16.85 on Wednesday after hitting a record high of $16.89 the day before.
High expectations are baked into the price which surged by more than 70% since the S&P/ASX 200 Index (Index:^AXJO) hit its COVID-19 nadir in March.
This is more than double the gains made by its larger rivals. The BHP Group Ltd (ASX: BHP) share price jumped by 38% and the Rio Tinto Limited (ASX: RIO) share price added 31% over the period.
Record shipment and guidance beat
Fortescue shipped 47.3 million tonnes (mt) in the June quarter and this takes its FY20 total shipment to 178.2mt.
That's above the top end of management's guidance of 177mt and is 6% higher than the previous financial year.
Management's FY21 guidance
While the C1 cash costs rose in the final quarter, it's still at a respectable US$13.02 per wet metric tonne (wmt). Total C1 costs for the full year stood at US$12.94 a wmt and that included increased expenses relating to the COVID-19 pandemic.
This gives Fortescue a healthy margin as it sold its ore at an average of US$81 a dry metric tonne (dmt) in the quarter (average for the year is US$79/dmt).
Management expected to ship 175 million to 180 million tonnes of ore in the current financial year and achieve a C1 costs of US$13.00 to US$13.50 per wmt.
Good margin bolsters cash
The miner's balance sheet is flushed with cash thanks to supply disruption from Brazilian rival Vale SA and good demand for steel in China.
Fortescue holds around US$4.9 billion in cash and only $300 million in debt. This means management has the financial muscle to return cash to shareholders, should it choose too.
This is despite rising cost for its Eliwana Mine and Rail Project with total capital expenditure expected to range between US$3 billion and US$3.4 billion in FY21.
Will Fortescue pay a special dividend?
Fortescue has the chance to be the capital return hero after Rio Tinto failed to impress on this front when it released its half year results yesterday evening.
But Fortescue's quarterly production report won't settle the debate on whether the stock is still cheap after it's big run up.
If the iron ore spot price holds above US$100 a tonne, there's still big upside for the FMG share price. But in this unpredictable COVID-19 environment, anything can happen.
