Fortescue Metals, the world’s fourth-largest iron ore producer and a common holding in client’s portfolios.
Fortescue Ltd (ASX:FMG) reported a sharp decline in first-half FY25 profit, with net income falling 53% year-on-year to $1.55 billion, impacted by weaker iron ore prices and softer demand from China. Underlying EBITDA dropped 38% to $3.64 billion, though it slightly exceeded analyst expectations of $3.6 billion. The company declared an interim dividend of A$0.50 per share, down from A$1.08 a year ago, reflecting a 65% payout of net profit.
Revenue declined 20% to $7.64 billion, driven by a 22% drop in total iron ore revenue to $6.75 billion. Despite this, Fortescue recorded its highest-ever first-half iron ore shipments of 97.1 million tonnes, a 3% increase from the prior year. However, the average realised iron ore price fell 21% to $85 per dry metric tonne, contributing to the weaker revenue performance. Free cash flow was significantly lower at $661 million, down 75% year-on-year, as capital expenditure rose 18% to $1.79 billion.
Operationally, Fortescue maintained stable iron ore production, but cost pressures were evident. The Pilbara Hematite C1 cost increased 8% year-on-year to $19.17 per wet metric tonne due to inflationary pressures and mine plan adjustments. The company reaffirmed its FY25 shipment guidance of 190-200 million tonnes and maintained its C1 cost outlook at $18.50 to $19.75 per wet metric tonne.
Capital expenditure guidance for FY25 has been revised, with metals spending narrowed to $3.5-$3.8 billion, up from $3.2 billion at the lower end, due to fleet deposit timing and the inclusion of the Red Hawk Mining transaction. Energy capital expenditure was cut to $400 million from $500 million, reflecting a more measured approach to its green energy initiatives. Fortescue has adjusted its project timelines for the Arizona Project and Gladstone PEM50 Project due to uncertain global market conditions, with further clarity expected by the end of FY25.
Chairman Andrew Forrest has reiterated Fortescue’s commitment to growth and decarbonisation, including a $2.8 billion partnership with Liebherr to develop zero-emission mining equipment. However, the company faces headwinds from China’s slowing steel demand and geopolitical uncertainties, which could weigh on iron ore prices in the near term. Despite these challenges, Fortescue continues to focus on maintaining its cost discipline and expanding its green energy strategy while navigating volatile market conditions.
As a reminder, FMG’s inclusion in the ASX Blue Chip portfolio is based on dividend yield, and while a lower dividend has been announced this morning, on a gross basis FMG still yields ~10% on a gross basis, making it one of the highest yielding stocks on the ASX. Based on this, it is unlikely FMG would be removed from the next rebalance at the start of March 2025.
