Fortescue Metals founder Andrew Forrest's luck turns again as iron ore price jumps
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The surge in iron ore prices has once again boosted the fortunes of Fortescue Metals (FMG) and its billionaire founder Andrew Forrest.
The world's fourth biggest iron ore miner says half-year profit jumped nearly 300 per cent to $US1.2 billion for the first half of 2017.
Investors will get a big rise in the interim dividend from $0.03 a share from the same time in 2016, to $0.20 a share fully franked for the six months to the end of December.
Mr Forrest's dividend payout for the half year is $200 million.
While Mr Forrest's big bet may have worked out so far, Fortescue remains captive to China's demand for iron ore.
Two years ago, the Fortescue Metal's founder raised the ire of competition regulators when he urged the big miners to form a cartel to push up iron ore prices.
"Look, I'm absolutely happy to cap my production right now," Mr Forrest told the Australian business community in Shanghai, at a function attended by the ABC.
"All of us should cap our production now and we'll find the iron ore price will go straight back up to $70, $80, $90."
The irony was that Fortescue was one of the miners responsible for the supply glut, which weighed on iron ore prices and saw the company forced to cut 100 jobs a day.
Back in 2015, the company also struggled to sell corporate bonds and was forced to offer higher yielding notes to get investors interested.
Now with the jump in iron ore prices to the highest in nearly three years, driven by commodity speculators and higher demand in China for steel, FMG's luck has turned.
Higher iron ore prices see Fortescue slash debt
Fortescue's chief executive, Nev Power, told journalists on a conference call that it had been a "very pleasant surprise".
"Like most Australian exporters, we are very strongly focused on that growth in China for the moment and in the future it will move to other countries across Asia," Mr Power said.
"I think it's about making sure we are positioning our businesses to take the opportunities that are presented by the market.
"If we call that luck, OK, but I would say that's what's driving the very strong returns that we are seeing across the industry."
The Fortescue boss does expect iron ore prices to ease back from the current price of above $US90 a tonne.
"There has been a lot of volatility in the iron ore price in the last few months," Mr Power said.
"I think that we will see it moderate to more sustainable, or should I say to more historic levels."
Higher iron ore prices have also seen Fortescue slash its net debt levels to $US4 billion.
Mining analyst Peter O'Connor, from Shaw and Partners, said the company could repay its debt within a few years if prices held up.
"At the current iron ore prices they could be debt free in about two years," Mr O'Connor said.
He conceded its debt repayment could take longer if iron ore prices fell.
"Even at a price closer to $US50 than the current price of $US90, the deleveraging process would be probably another year beyond that, so they are still in a phase where they are rapidly deleveraging and able to start considering other options for their surplus cash," he said.
Several challenges facing Fortescue 'visionary'
Fortescue has not ruled out mining other commodities. It has a base metals project in WA and a copper exploration project in New South Wales.
Fat Prophets mining analyst, David Lennox, said the biggest challenges facing Fortescue were a slowdown in the Chinese economy, more iron ore supply coming onto the market, and the company's lack of diversification.
"One would have to suggest that as a single commodity company they are in fact weathered to the ups and downs of the iron ore price, and that is of itself a risk, but of course if you are prepared to take the risk when the times are good you do get excellent returns," Mr Lennox said.
"And as we saw not more than a couple of years ago, when the times aren't so good, returns can be very, very dour."
Mr Forrest has been described as a used car salesman and able to sell ice to Eskimos.
But Mr Lennox said the current market view was more positive.
"One would have to suggest that he built an iron ore mine where there are two very big operators already in Rio and BHP up in the Pilbara," he said.
"He's come in and really probably shaken that particular region up by developing a whole brand new iron ore mine.
"I think the markets would have said that's quite a visionary."
Topics: iron-ore, mining-industry, business-economics-and-finance, mining-rural, australia
