Fortescue Metals achieves best ever financial year performance fuelled by record iron ore prices

Riding the wave of high iron ore prices is Andrew “Twiggy” Forrest’s mining company Fortescue Metals Group (ASX: FMG), which achieved its best-ever financial year performance beating previous records for shipments, earnings and operating cash flow.

Fortescue chief executive officer Elizabeth Gaines said the company’s record FY 2021 surpasses the company’s successes in FY 2020.

For FY 2021, Fortescue shipped 182.2 million tonnes of iron ore which was up 2% on FY 2020 levels.

The prevailing high iron ore prices led to a 72% rise in average export revenue, which was US$135 per dry metric tonne (A$185/dmt) in FY 2021.

This resulted in a 74% increase in revenue to US$22.3 billion (A$30.5 billion) – underpinning net profit after tax of US$10.3 billion (A$14.1 billion) for FY 2021 compared to US$4.7 billion (A$6.43 billion) in FY 2020.

Meanwhile, net operating cash flow hit US$12.6 billion (A$17.25 billion).

The record performance drove an 117% increase in earnings per share to U$3.35 (A$4.48) – paying out US$8.2 billion (A$11 billion) in dividends.

Fortescue’s founder and chairman Twiggy scored US$2.9 billion (A$4 billion) of that pay out with his aggregated stake of almost 37% in the company.

Kicking goals

Ms Gaines attributed the company’s success to a “strong operating performance” across its supply chain and the successful ramp up and integration of the company’s newest mining operation Eliwana.

She also noted the strong customer demand for Fortescue’s iron ore.

Chinese steel makers are competing for the metal, while demand outside of the world’s largest iron ore consuming nation is also picking up.

China sources about 50-60% of its iron ore from Australia, with analysts predicting demand will continue particularly as Brazilian operations continue to struggle following Vale’s catastrophic dam collapse in 2019 that led to mine closures.

After pushing past US$230/t in May, the iron ore price is currently hovering at US$155/t – a far cry from the 2016 lows when the commodity fell under US$40/t.

Fortescue Future Industries

A major milestone for Fortescue in FY 2021 was establishing Fortescue Future Industries which was designed to take a take a “global leadership position” in renewable energy and green products but using renewable energy to generate green electricity, hydrogen and other products.

“The establishment of Fortescue Future Industries during the year underpinned our industry leading target to achieve carbon neutrality by 2030,” Mr Gaines explained.

“Fortescue Future Industries will be a key enabler of this target through a forward-looking approach to ensuring our capital investments in decarbonisation are aligned with strategic decisions such as fleet renewal.”

Under Fortescue’s capital allocation framework, 10% of net profit after tax will be used to fund Fortescue Future Industries’ initiatives.

The FY 2021 allocation was US$1 billion, with US$122 million spent.

In FY 2022, expenditure is expected to be US$400-600 million, with funds to be funnelled into green fleet development, decarbonisation technologies and identifying other potential in Australia and abroad.

FY 2022 guidance

Ms Gaines said Fortescue had already experienced a “strong start” to FY 2022, which she says is due to “operational excellence, sustained focus on productivity, and a discipline approach to capital allocation”.

For FY 2022, Fortescue expects to ship between 180Mt and 185Mt of iron ore with operating costs ranging between US$15-15.50/wmt.

Excluding the Fortescue Future Industries business, Fortescue estimates capital expenditure will sit between US$2.8 billion and US$3.2 billion.

This compares to US$3.6 billion in FY 2021, which comprised US$1.3 billion on sustaining, hub and operational development capital, US$0.2 billion on exploration and studies and US$2.1 billion on growth projects.