In the three months to 31 March 2022, Fortescue upgraded how much iron ore it is expecting to ship in FY22.
Highlights from the third-quarter update
The miner shipped 46.5 million tonnes for the quarter, which was 10% higher than the third quarter of FY21. This contributed to record shipments for the nine months to 31 March 2022 of 139.5mt.
The business increased its FY22 guidance for iron ore shipments to 185mt to 188mt, up from a range of 180mt to 185mt.
Not only did the business ship more, but it saw average revenue of US$100 per dry metric tonne, representing revenue realisation of 70% of the Platts 62 CFR Index for the quarter, up from 68% in the second quarter of FY22.
However, costs are also increasing. The quarterly C1 cost was US$15.78 per wmt, up 3% from the previous quarter. The guidance for the FY22 C1 cost has been revised to a range of US$15.75 to US$16 per wmt, up from US$15 to US$15.50 per wmt.
The Iron Bridge project capital estimate has also been increased to between US$3.6 billion to US$3.8 billion, up from US$3.3 billion to US$3.5 billion. The company blamed COVID-19 related labour constraints, a tight labour market, supply chain issues, higher construction costs, as well as higher logistics and shipping costs, which have worsened due to recent lockdowns in China.
Is the Fortescue share price an opportunity?
According to reporting by the Australian Financial Review the broker UBS has increased its price target for the Fortescue share price by over 9% to $18.70. However, the rating is still neutral on the ASX mining share.
The AFR quoted UBS, which said:
Current high spot prices and potential for China stimulus to keep prices higher for longer should support shareholder returns, but over the long term we remain cautious on iron ore. China’s stimulus response to current COVID conditions remains an upside risk to our forecast.
However, there are other brokers that are even less optimistic about the Fortescue share price.
Credit Suisse has a price target of $15. That implies a potential fall of around 30% over the next year. It thinks that it is valued too expensively compared to other mining shares. However, this price target was increased to $15 from $14.
On Credit Suisse numbers, the FY22 Fortescue grossed-up dividend yield is 12% and then 8.7% in FY23.