Fortescue (ASX:FMG) share price lower on Q3 update

The iron ore giant’s shares are sliding today despite it reporting strong iron ore prices during Q3 of FY 2021.

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The Fortescue Metals Group Limited (ASX: FMG) share price is dropping today following its third quarter update.

At the time of writing, the iron ore producer’s shares are down 2% to $22.14. 

How did Fortescue perform in the third quarter?

Fortescue was a relatively solid performer during the third quarter, achieving flat year on year iron ore shipments of 42.3 million tonnes. This brings its year to date shipments to 132.9 million tonnes, which is 2% higher than the prior corresponding period.

Positively, the mining giant continues to benefit from rising iron ore prices. During the quarter, Fortescue averaged US$143 per dry metric tonne. This was up 17% on the second quarter and represents revenue realisation of 86% of the average Platts 62% CFR Index.

And although its C1 costs increased 16% quarter on quarter to US$14.90 per wet metric tonne (due to seasonally lower volumes and the strength of the Australian dollar), it is still averaging a lowly year-to-date C1 cost of US$13.45 per wet metric tonne.

This means Fortescue is generating significant free cash flow right now.

Management commentary

Fortescue’s Chief Executive Officer, Elizabeth Gaines, said “Fortescue’s excellent operating performance continues to drive strong results, with shipments of 42.3mt in the third quarter contributing to a record shipping performance for the first nine months of the financial year.

“The commissioning of the Eliwana mine has contributed to an increase in both ore mined and processed during the quarter, despite the impact of significant rainfall across our operations in the Pilbara.”

“Against the backdrop of the record performance in our iron ore business and our clean energy focus, Fortescue is well-placed to finish the financial year strongly, as we continue to meet demand from our customers and deliver value for all stakeholders,” Ms Gaines concluded.

Outlook

Pleasingly, Fortescue’s guidance for FY 2021 shipments and C1 costs remain unchanged.

It continues to expect shipments of 178 million tonnes to 182 million tonnes with C1 costs of US$13.50 to US$14.00 per wet metric tonne.

However, its capital expenditure guidance has been revised to a range of US$3.5 billion to US$3.7 billion. This is up from between US$3 billion and US$3.4 billion, reflecting the ongoing strength of the Australian dollar, continuation of critical path works at Iron Bridge, and investments by Fortescue Future Industries in decarbonisation initiatives.

It could be the latter change that is weighing on the Fortescue share price today.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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