By Rhiannon Hoyle
SYDNEY--Fortescue Metals Group Ltd. (FMG.AU) more than halved its dividend after a sharp fall in annual profit and offered more detail around plans to reinvigorate earnings by changing the type of iron ore it sells.
The world's fourth-biggest exporter of iron ore on Monday recorded a 58% slump in net profit for the 12 months through June, to US$879 million. Directors declared a final dividend of 12 Australian cents (US$0.088) a share, down from a payout of A$0.25 a share a year ago. That was largely in line with expectations given headwinds buffeting the miner were well known.
The company has been grappling with a stubbornly wide price gap between ore with high and low iron-content that emerged over the past couple of years as Chinese steelmakers sought higher-grade raw materials.
"High profit margins being realized by Chinese steel mills, uncertainty surrounding environmental restrictions and high coal prices supported increased demand for high iron-content ores," Fortescue said in an annual report on Monday.
Fortescue provided further details on a plan to sell a new 60% iron-content product, which it said will be named West Pilbara Fines. The miner currently sells cargoes with about 58% iron content, well below the industry benchmark of 62%.
Perth-based Fortescue said it will start producing West Pilbara Fines early in 2019 by blending ore from its existing Firetail mine with higher iron-content ore from newly developed areas near its Cloudbreak pit, all in Western Australia's Pilbara region.
Over the longer-run, ore will be sourced from the US$1.3 billion Eliwana mine and rail project, which Fortescue's board approved in May. Fortescue aims to have the Eliwana mine running by the end of 2020.
Companies that specialize in exporting low-grade ore have fallen out of favor with investors as unwanted material piled up at China's coastal ports. Shares in Fortescue have fallen roughly 30% since the start of 2017.
BHP Billiton Ltd. (BHP.AU), the world's top miner and third-largest iron-ore exporter by volume, is also developing a new mine at a high-grade deposit in the Pilbara to lift its average grade to 62% from 61%.
Fortescue recorded an average iron ore price of US$44 a metric ton for the year through June. That was down from US$53 a ton during the year-earlier period.
It sold shipments for about 64% of the average benchmark price during the year, compared to roughly 77% during the 12 months prior. On Friday, iron ore with 58% iron content was selling for US$38.50 a ton versus the benchmark 62% iron-content price of US$67.50 a ton, according to S&P Global Platts, a price-information provider.
Fortescue shipped 170 million metric tons of the steelmaking commodity, in line with its annual target and with prior-year shipments of 170.4 million tons. It cut mining costs, but said it faced pressure from increased fuel expenses and higher charges for shipping.
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