Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Iron ore titans delivers bumper profits and record dividends
Rio Tinto (ASX:RIO) – Has delivered a bumper profit which exceeded expectations. The iron ore miner recorded a 1H profit of US$12.1bn on the back of booming iron ore demand from Chinese steel mills. The record profit number is more than double last year’s US$4.75bn. Net earnings jumped by 271 per cent to a US$12.3bn ($A16.7bn) on the back of “exceptional market conditions”.
RIO declared an ordinary dividend of $US3.76 a share and a special dividend of $US1.85 a share. The previous record for its dividend was $US2.12, set back in 2019. RBC Capital Markets said the special payout was 57 cents ahead of consensus estimates.
However, the good times aren’t expected to continue for too much longer with RIO warning the strong demand from China is short term and might not be sustainable. The spike is due to a high level of industrial developments in the first months of the year. Benchmark iron ore prices remain strong this week at more than $US200 a tonne.
Looking forward – Rio Tinto said it would spend $US2.4bn ($A3.26bn) on the big Jadar greenfield lithium-borates project in Serbia to secure long term exposure to battery materials. The next steps are to be granted an exploitation licence and regulatory approvals, with a construction start target of 2022.
Fortescue Metals (ASX:FMG) – In similar fashion, Fortescue delivered bumper profits on the back of a surging iron ore price. FMG narrowly beat its full-year estimate for shipments. Fortescue released its June quarter production saying it delivered record iron ore shipments of 49.3 million tonnes (mt) for the quarter and 182.2mt for FY21, exceeding guidance of 182mt. This gave the iron ore giant strong free cashflow generation with cash on hand of US$6.9 billion and net cash of US$2.7 billion at 30 June 2021. FMG is now in a strong position to pay a high dividend to shareholders. Gross debt reduced to US$4.3 billion at 30 June 2021 from US$4.6 billion at 31 March 2021 due to the completion of the refinancing of the Senior Unsecured Notes.
Fortescue Chief Executive Officer, Elizabeth Gaines, said, “This was an outstanding performance despite the impact of wet weather, as well as COVID-19 restrictions requiring many of our team members to remain on site for extended periods during WA’s lockdowns. We greatly appreciate the ongoing cooperation of the entire Fortescue family as we continue to manage the impacts of COVID-19.”
Fortescue’s average revenue of US$135.32/dmt in FY21 represents revenue realisation of 88 per cent of the average Platts 62% CFR Index of US$154.31/dmt. Revenue per tonne increased by 72 per cent compared to FY20, reflecting strong market conditions and sustained demand for Fortescue’s products.
FMG has also made inroads with Fortescue Future Industries (FFI). The business unit is taking a global leadership position in the green energy and green products industry by harnessing the world’s renewable energy resources to produce green electricity, green hydrogen, green ammonia and other green industrial products. FFI’s expenditure in FY21 was approximately US$120 million.
