The Fortescue Metals Group Limited (ASX: FMG) share price is trading lower with the rest of the market on Thursday despite the release of a strong first quarter update.
At the time of writing, the iron ore producer's shares are down 1% to $16.32.
What happened in the first quarter?
For the three months ended 30 September, Fortescue delivered record first quarter iron ore shipments of 44.3 million tonnes (mt). This was a 5% increase on the prior corresponding period.
Also heading in the right direction was the company's costs. Fortescue's C1 costs came in at US$12.74 per wet metric tonne (wmt) for the quarter, down 2% on the same quarter last year.
Another big positive was the strong demand it is experiencing for its products. Management notes that Chinese crude steel production reached 781.6mt in the nine months to September 2020. This is an increase of 4.5% compared to the same period in 2019.
Demand was particularly strong for sinter fines, supporting Fortescue's pricing during the quarter and leading to average revenue of US$105.77 per dry metric tonne (dmt). This represents revenue realisation of 89% of the average Platts 62% CFR Index.
Balance sheet.
Fortescue achieved strong free cashflow generation during the quarter.
This led to the company finishing the period with net cash of US$1 billion, compared to net debt of US$0.3 billion at 30 June 2020.
Cash on hand stood at US$5.1 billion at 30 September. Though, this includes US$2.2 billion allocated to the FY 2020 final dividend, which was paid on 2 October 2020. It also includes approximately US$850 million reserved for the FY 2020 final tax payment, which is due in December.
Guidance.
Fortescue has reaffirmed its guidance for FY 2021. It continues to expect its iron ore shipments to be in the range of 175mt to 180mt, with C1 costs of US$13.00 to US$13.50 per wmt. This is based on an assumed exchange rate of AUD:USD 0.70.
Capital expenditure is forecast to be in the range of US$3 billion to US$3.4 billion. This is inclusive of US$1 billion of sustaining, operational, and hub development capital, US$140 million of exploration expenditure and studies, and US$1.9 billion to US$2.3 billion for major projects. The latter includes Eliwana, Iron Bridge and Energy.
