Fortescue share price charges higher on Q3 update and shipments guidance upgrade

The Fortescue Metals Group Limited (ASX: FMG) share price is rising on Thursday morning. In early trade, the iron ore …

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Key points

  • Fortescue shares following the mining giant's third quarter update
  • The company reported record year to date shipments and a strong increase in the price received for its iron ore
  • This appears to have offset a rise in costs and delays at its Iron Bridge Magnetite project

The Fortescue Metals Group Limited (ASX: FMG) share price is rising on Thursday morning.

In early trade, the iron ore miner’s shares are up 3% to $20.75 following the release of a mixed third quarter update.

Fortescue share price higher on Q3 update

  • Iron ore shipments up 10% year on year to 46.5 million tonnes (mt)
  • Average revenue up 34% quarter on quarter to US$99.52 per dry metric tonne (dmt)
  • C1 costs up 3% quarter on quarter to US$15.78 per wet metric tonne (wmt)
  • Net debt of US$2.4 billion
  • Shipments guidance upgraded to between 185mt and 188mt
  • C1 costs guidance increased to between US$15.75 and US$16.00 per wmt

What happened during the quarter?

For the three months ended 31 March, Fortescue reported a 10% year on year increase in shipments to 46.5mt. This means that shipments for the first nine months of FY 2022 have now reached a record high of 139.5mt.

Pleasingly, this shipments growth comes at a time of higher prices, with Fortescue commanding an average of US$99.52 per dmt during the quarter. This represents a revenue realisation of 70% of the Platts 62% CFR Index, which is up from 68% during the second quarter.

Partially offsetting this was a 3% quarter on quarter increase in Fortescue’s C1 costs to US$15.78 per wmt. This was driven largely by inflation across key inputs.

Management commentary

Fortescue’s Chief Executive Officer, Elizabeth Gaines, was very pleased with the company’s quarterly performance.

She said: “Fortescue’s excellent operating performance continues to drive strong results, with shipments of 46.5mt in the third quarter contributing to record shipments in the nine months to 31 March 2022. This strong performance is underpinned by the successful delivery and ramp up of the Eliwana project, and execution of our integrated operations and marketing strategy, resulting in the upgrade to FY22 shipment guidance to 185 – 188mt.”

“Against the backdrop of a record performance in our iron ore business and our focus on decarbonisation and green energy, Fortescue is well placed to finish the financial year strongly, as we continue to meet demand from our customers and deliver on our strategic priorities,” Ms Gaines added.

Outlook

As mentioned above, the company has increased its shipments guidance to between 185mt and 188mt. This compares to its previous guidance of 180mt to 185mt.

However, taking some of the shine off this was an increase to its costs guidance. Fortescue now expects its C1 costs to between US$15.75 and US$16.00 per wmt. This is up from US$15.00 to US$15.50 per wmt previously, reflecting inflation across key input costs.

And while the company has narrowed its FY 2022 capital expenditure guidance (excluding FFI) down to US$3 billion to US$3.2 billion from US$3 billion to US$3.4 billion, it has increased its Iron Bridge Magnetite project capital estimate.

The latter has been revised to US$3.6 billion to US$3.8 billion, up from its previous estimate of US$3.3 billion to US$3.5 billion. This has been driven by delays caused by ongoing supply chain issues. First production is now planned for the March 2023 quarter, instead of its previous guidance of December 2022.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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