Shares of Australian iron ore producer Fortescue Metals (ASX:FMG) sank almost 5 percent on Wednesday (February 21) after the miner released its half-year financial results.
Weaker prices for its lower-quality iron ore and declining demand from China hit the company’s profits, which fell 44 percent, to $688 million.
Fortescue’s revenue also dropped to $3.68 billion in the six months ended December 2017, down from $4.49 billion in the same period in 2016. As a result, the company cut its interim dividend to AU$0.11 per share.
That is almost half what it paid out in the first half of 2017. But the company said the dividend payout reflects its “consistent operating performance and financial outlook.”
CEO Elizabeth Gaines told journalists on a conference call that Fortescue remains confident that steep price discounts on its iron ore will improve to 70 to 75 percent of the benchmark iron ore price once China scales back steel production cuts imposed over the winter.
“We anticipate that coming out of the Chinese New Year period, coming out of the winter production cuts that have been mandated, when that will occur on March 15 we expect the level of discounting will improve,” she said.
Meanwhile, Fortescue, one of the world’s top four iron ore miners, will continue to focus on cutting costs. Total iron ore shipments during the period were 84.5 million tonnes with C1 cash costs of $12.11 per wet metric tonne (wmt).
“Our team has continued to deliver during the first half improving safety, lowering C1 costs to US$12.08/wmt in the December quarter and maintaining production in line with our full year guidance of 170 mtpa,” Gaines said in a statement.
Fortescue also announced a $1.4-billion funding deal with Chinese, Australian and international lenders, which it said would help cut debt costs.
“This facility lowers Fortescue’s average cost of capital, improves flexibility, strengthens the balance sheet and further develops our strong relationships with China,” Gaines added.
On Wednesday, shares of Fortescue Metals closed down 4.66 percent in Sydney, at AU$5.11. The company’s share price has increased 3.65 percent year-to-date.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.