Quarterly highlights
The
Total Recordable Injury Frequency Rate (TRIFR) was maintained at 2.5,
improving 11 per cent from 2.8 in FY19.
The
health and safety of the Fortescue team is the highest priority and a
range of comprehensive measures have been implemented in response to the
global COVID-19 pandemic.
Record third quarter iron ore shipments of 42.3 million tonnes were 10
per cent higher than Q3 FY19, and year-to-date shipments are a record
130.9 million tonnes.
C1
costs of US$13.27/wet metric tonne (wmt) were two per cent lower than Q3
FY19 costs of US$13.51/wmt.
Robust demand for Fortescue products delivered average revenue of
US$73/dry metric tonne (dmt).
Strong
free cashflow generation resulted in cash on hand of US$4.2 billion at
31 March 2020 and net cash of US$0.1 billion, compared to net debt of
US$2.9 billion at 31 March 2019.
Fortescue’s major growth projects achieved key milestones in Q3 with
capital expenditure guidance for FY20 revised to US$2.0 - US$2.2
billion, reflecting expected timing of cash outflows.
Based on the strong operating performance year-to-date, guidance for
FY20 shipments is upgraded to 175 - 177 million tonnes.
Fortescue Chief Executive Officer, Elizabeth Gaines, said “The health
and safety of our people, their families and the broader community is
our priority, and we have been responsive to the unprecedented global
COVID-19 health pandemic and economic crisis. We are committed to
ensuring robust plans are implemented to prevent the spread of infection
to any of our sites, with a temporary extended operational roster
introduced to reduce people movement, as well as measures to monitor the
health of all team members and support best practice physical distancing
at our operations.”
“Fortescue’s strong operating performance in the March quarter has
delivered record shipments, increasing ten per cent compared to the
prior comparable quarter, and a two per cent reduction in C1 costs
maintaining our industry leading cost position. This result underpins an
upgrade to our full year guidance for shipments.”
“Fortescue is a core supplier of iron ore to China and we see strong
ongoing demand for our products and anticipate a steady recovery in
economic activity in that market. While the global economic outlook
remains uncertain, our balance sheet has never been stronger and we
continue to generate sustained cashflows and jobs, invest in growth and
focus on delivering returns to our shareholders.”
Operations
Production summary (wmt) |
Q3
FY20 |
Q2
FY20 |
Var
(%) |
Q3
FY19 |
Var
(%) |
Ore
mined |
41.9 |
54.6 |
-23 |
48 |
-13 |
Overburden removed |
77.5 |
70.7 |
10 |
67.3 |
15 |
Ore
processed |
42.4 |
46.2 |
-8 |
43 |
-1 |
Total
ore shipped |
42.3 |
46.4 |
-9 |
38.3 |
10 |
C1
(US$/wmt) |
13.27 |
12.54 |
6 |
13.51 |
-2 |
Note:
Volume references are based on wet metric tonnes (wmt). Product is
shipped with about 8-9 per cent moisture.
The
Total Recordable Injury Frequency Rate (TRIFR) reduced to 2.5 on a
rolling 12-month basis as at March 2020 from 2.8 in FY19.
Fortescue remains focused on improving safety culture and performance
through committed leadership and empowerment of the workforce. A
structured approach to reducing the fatality risk profile through a
range of engineering controls continues, and an exposure reduction
program was introduced during the quarter to further reduce the risk of
injuries to the workforce.
Building on the record achieved for the first half of FY20, Fortescue’s
outstanding operating performance was sustained with mining, processing,
rail, and shipping combining to deliver record third quarter shipments
of 42.3 million tonnes. This result was 10 per cent higher than Q3 FY19
despite weather disruptions and COVID-19 measures. The Q3 FY20 strip
ratio was 1.9 and guidance for FY20 remains at 1.5.
C1
costs of US$13.27/wmt were two per cent lower than the prior comparable
period, reflecting strong performance and sustained cost management. The
six per cent increase compared to Q2 FY20 was predominantly driven by
the higher strip ratio in the quarter. Year-to-date C1 costs are
US$12.90/wmt.
The
autonomous haulage project is progressing as planned, with 163 trucks
operating autonomously, and is expected to be completed in the second
half of calendar year 2020.
Fortescue continues to be well positioned to deliver on upgraded
guidance and meet the needs of customers, underpinned by its fully
integrated operations and marketing strategy.
Marketing
Chinese crude steel production was resilient in the first quarter of
CY20, reaching 234.5 million tonnes, 1.2 per cent higher year-on-year,
according to China’s National Bureau of Statistics. China’s iron ore
demand was supported by continued strong steel production and reduced
consumption of scrap steel, while seaborne iron ore supply was affected
by weather-related disruptions. Total iron ore stocks at Chinese ports
at 31 March 2020 were 117 million tonnes, 10 million tonnes lower than
31 December 2019.
Strength in steel production supported demand for Fortescue’s products
with average revenue of US$72.69/dmt in Q3 FY20, representing revenue
realisation of 82 per cent of the average Platts 62% CFR Index price of
US$89.00/dmt in the quarter with Fortescue’s contractual price
realisation averaging 83 per cent of the Index. The Platts 62% CFR Index
closed at US$83.70/dmt at 31 March 2020, compared to US$91.95/dmt at 31
December 2019.
Tonnes shipped (wmt) |
Q3
FY20 |
Mix
(%) |
Q2
FY20 |
Mix
(%) |
Q3
FY19 |
Mix
(%) |
West
Pilbara Fines |
4.1 |
10 |
4.7 |
10 |
3.8 |
10 |
Kings
Fines |
3.2 |
8 |
4.2 |
9 |
3.4 |
9 |
Fortescue Blend |
17.6 |
41 |
19.9 |
43 |
16.1 |
42 |
Fortescue Lump |
3.5 |
8 |
3.3 |
7 |
2.2 |
6 |
Super
Special Fines |
13.9 |
33 |
14.3 |
31 |
12.6 |
33 |
Manganese Iron Ore |
0 |
0 |
0 |
0 |
0.2 |
0 |
Total |
42.3 |
100 |
46.4 |
100 |
38.3 |
100 |
Cash
on hand was US$4.2 billion at 31 March 2020 (US$3.3 billion at 31
December 2019). This includes US$1.6 billion reserved for the FY20
interim dividend, which was paid on 6 April 2020.
Gross
debt remained at US$4.0 billion at 31 March 2020, resulting in a net
cash position of US$0.1 billion, compared with net debt of US$2.9
billion at 31 March 2019.
Fortescue’s balance sheet remains structured on low cost, investment
grade terms while maintaining flexibility for additional repayment and
future growth. Consistent with its disciplined capital management
strategy and to enhance the strong liquidity position, the Company drew
down on its US$1.0 billion Revolving Credit Facility in April 2020.
Total
capital expenditure for the quarter was US$414 million inclusive of
sustaining capital, exploration and development expenditure. Total
capital expenditure year-to-date is US$1.3 billion.
The
iron ore prepayment balance reduced to US$87 million at 31 March 2020,
with amortisation for the quarter of US$131 million. The balance of
these prepayments will be amortised by 30 June 2020.
Iron ore projects
Eliwana
The
Eliwana Mine and Rail project achieved key milestones in the quarter
including the completion of earthworks on stage one of the railway in
preparation for first track laying, the first steel erection for the Ore
Processing Facility and completion of the permanent village and
aerodrome. The first charter flight is expected in the June quarter,
while pre-strip mining is scheduled to commence in Q1 FY21.
Fortescue is continuing to work closely with its contractors and
suppliers to mitigate any impact of COVID-19 on the project schedule.
Site works are ramping up with the construction peak still expected
around mid-year, in accordance with the schedule of first ore on train
in December 2020.
Contractual capital commitments for the Eliwana project are tracking in
line with expectations, however the timing of incurred spend and cash
outflows has contributed to a revision in FY20 capital expenditure
guidance to US$550 – US$650 million (previously US$700 – US$800
million). This timing variance will be incurred in FY21, with total
investment in the project unchanged at US$1.275 billion.
Iron Bridge
The
US$2.6 billion Iron Bridge Magnetite project is progressing on schedule
and budget, with first concentrate production planned in the first half
of calendar year 2022.
Key
milestones in the quarter included detailed engineering passing the
halfway mark, procurement of major long lead process equipment committed
and the first blast at the Ore Processing Facility site, enabling bulk
earthworks to commence.
Key
project deliverables in the June quarter include completion of the mine
access road and permanent village earthworks and in the second half of
the calendar year will focus on commencement of site construction and
major module fabrication.
Fortescue’s share of Iron Bridge capital expenditure in FY20 is now
expected to be at the lower end of the guided range of US$300 - US$400
million. The Company’s share of total investment in the project is
unchanged at US$2.1 billion.
Exploration
Total
exploration expenditure for Q3 FY20 was US$18 million. It is anticipated
that full year expenditure will be US$120 million, which is US$20
million lower than earlier expectations due to COVID-19 impacts.
Iron
ore exploration in the Pilbara is ongoing, with activity in the quarter
focussed on resource definition drilling at Eliwana in the Western Hub
region. Fortescue’s non-critical heritage surveys were suspended in
March 2020 in response to COVID-19.
All
field exploration activities in the Paterson, Rudall and Goldfields
regions of Western Australia, together with activities in New South
Wales and South Australia were temporarily suspended in March 2020.
Exploration and field activities in Ecuador and Argentina were
temporarily suspended in March 2020, to align with Government mandated
lockdowns due to COVID-19. Assessment of previous drilling activities
and various geological studies are ongoing.
FY20 guidance
Guidance for shipments upgraded to 175 - 177 million tonnes (previously
upper end of the range of 170 - 175 million tonnes)
C1
cost guidance of US$12.75 - US$13.25/wmt
Average waste to ore strip ratio of 1.5
Total
capital expenditure revised to US$2.0 - US$2.2 billion (previously
US$2.4 billion), reflecting the timing of expected payments on growth
projects
Depreciation and amortisation of US$7.70/wmt
Dividend policy remains to pay-out a ratio of 50 to 80 per cent of full
year net profit after tax.
Official Document |