By Rhiannon Hoyle
SYDNEY-- Fortescue Metals Group Ltd. slashed shareholder payouts
as its first-half profit sank by more than 80% thanks to the
downturn in iron-ore prices.
The world's No. 4 exporter of iron ore has been cutting costs
and project spending while trying to reduce its debt levels, after
the steelmaking commodity's value more than halved since the start
of last year.
Even so, Perth, Australia-based Fortescue's net profit dropped
to US$331 million in the six months through December, down from
US$1.72 billion in the same period a year earlier, the company said
Tuesday. It cut its interim dividend to 3 Australian cents a share,
down from 10 Australian cents a share a year ago.
Iron-ore prices have been hit by a glut in supply coming from
companies like Fortescue and its larger peers Rio Tinto PLC and BHP
Billiton PLC. That has coincided with moderating demand growth in
China, the world's biggest consumer of the commodity.
Fortescue said it would target further production cost
reductions, while keeping a lid on growth projects until there is
an improvement in the market. Chief Executive Nev Power said paying
down a multibillion-dollar debt pile used to fund past rapid
expansion remained its top priority.
"We don't see spending capital as a smart thing to do at the
moment," he said. "We will be in a position to grow as the market
demand is there to do that."
Sharply higher output from its mines has helped cushion the
impact of the fall in iron-ore prices, Fortescue said. It shipped
53% more iron ore from its operations in the remote Pilbara mining
region of northwestern Australia than a year ago. Nonetheless, the
company's margin on its earnings before interest, tax, depreciation
and amortization narrowed nearly 30% in the last six months, down
from 55% a year ago.
Analysts currently expect iron-ore prices to fall further this
year as global supplies continue to rise, although the Australian
dollar's recent weakness should provide some support to domestic
mining companies' earnings.
"We are concerned that further weakness in iron ore will
continue to compress Fortescue's margins over the next three-to-six
months," said Christopher LaFemina, an analyst at investment bank
Jefferies, who recommended investors cut their holdings in the
company.
"The problem is that management cannot control the iron-ore
price," he said.
Shares in the mining company dropped 4.9% on the Australian
stock exchange versus a 0.2% rise in a broader materials index.
Other iron-ore producers are facing challenges, too. Mount
Gibson Iron Ltd. said Tuesday it swung to a large first-half loss
due to hefty write-downs following the price falls and the
mothballing of its own Koolan Island iron-ore mine.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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