Could this 'further strengthening' boost the Fortescue share price moving forward?

Paying off debt could be a useful thing for Fortescue to do.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • Earlier this week, Fortescue announced it was going to pay down debt
  • It is repaying US$750 million of its 5.125% notes early
  • This move is likely to improve the company’s net profit

The Fortescue Metals Group Ltd (ASX: FMG) share price could get a boost over the longer term over the ASX mining share's latest move to improve its balance sheet.

Many investors pay a lot of attention to the company's income statement, but the balance sheet can be just as important, if not more important to a business's long-term health. Managing a company's assets and liabilities could be the difference between success and failure.

This week, Fortescue revealed a promising update regarding its balance sheet.

Female miner on a walkie talkie.

Image source: Getty Images

Redemption of senior unsecured notes

The ASX iron ore share announced to the market that it is redeeming its outstanding US$750 million 5.125% senior unsecured notes which are due in May 2024. The redemption will be completed on 1 June 2023.

Fortescue said that the notes will be "redeemed utilising cash on hand, further strengthening Fortescue's capital structure." A stronger balance sheet could be good news for the Fortescue share price. 

The company said that the redemption price for the notes will be 100% of the principal amount of the notes redeemed, plus any accrued interest up to, but excluding, the redemption date. Interest will not accrue and the notes will not be deemed to be outstanding on the redemption date.

What's the benefit of this move?

For Fortescue, it makes sense to redeem the notes and avoid paying that relatively expensive interest rate. I would guess that the interest income Fortescue could generate from having that cash in the bank wouldn't be as high as much as the notes are costing the ASX mining share.

The company's net assets figure doesn't change by making this move, but it should improve the net profit with a lower interest expense.

Investors typically like to value an ASX share based on the net profit after tax (NPAT) or cash flow that they're going to generate. Given this move should improve the NPAT and cash flow, it's likely to be seen as a benefit for the Fortescue share price, even if it's just a small benefit.

Fortescue share price snapshot

As we can see on the graph above, the ASX iron ore share has risen by around 2% over the past year. It has slightly outperformed the S&P/ASX 200 Index (ASX: XJO) over the same time period, which has risen by 1.3%.

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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 Scott Phillips.

More on Resources Shares

Miner and company person analysing results of a mining company.
Earnings Results

Iluka Resources shares: 2026 half-year earnings results unravelled

Let's see what the mineral sands producer reported for the half.

Read more »

A group of five engineers wearing hard hats and some in high visibility vests raise their arms in happy celebration atop a building site with construction and equipment in the background.
Broker Notes

Why this $1.4 billion ASX All Ords mining stock is tipped to jump 30%

A top wealth manager forecasts more than 30% returns from this ASX mining stock.

Read more »

Flying Australian dollars, symbolising dividends.
Resources Shares

Everything you need to know about the BHP dividend

This is how much BHP shareholders are going to be paid.

Read more »

Two miners at a mine site on their tablets, with mining machinery behind them.
Resources Shares

Lycopodium lands $37 million contract for Bolivian silver project

Lycopodium share price in spotlight after winning a $37 million EPCM contract for Bolivia’s San Cristóbal mine expansion.

Read more »

Miner puts thumbs up in front of gold mine quarry.
Resources Shares

Westgold Resources: Maiden Fletcher Ore Reserve announcement

Westgold Resources unveiled a maiden Fletcher Ore Reserve and a major resource upgrade, strengthening long‑term prospects.

Read more »

Cheerful businessman with a mining hat on the table sitting back with his arms behind his head while looking at his laptop's screen.
Earnings Results

Deterra Royalties posts profit rise and boosts dividend in FY26 results

Here's what the company reported for the financial year and how big that dividend will be.

Read more »

Machinery at a mine site.
Resources Shares

Evolution Mining shares are up 76%. Could results spark another surge?

Evolution needs a strong FY27 outlook to keep its rally going.

Read more »

Businesswoman holds hand out to shake.
Resources Shares

Ausgold shares in focus after OceanaGold's $776m takeover offer

OceanaGold launched a recommended takeover at a sizeable premium, offering scrip or cash and ongoing project exposure.

Read more »