February 20, 2013 / 3:51 AM / 5 years ago

UPDATE 1-Australia's Fortescue H1 profit slumps, eyes China demand

SYDNEY, Feb 20 (Reuters) - Australia’s Fortescue Metals Group, the world’s No.4 iron ore producer, reported a 40 percent fall in first-half profit due to weak iron ore prices but flagged resurgent demand from Chinese steel makers.

Like larger rivals Rio Tinto Ltd and BHP Billiton , Fortescue was hit by rising costs and an unexpected slump in the iron ore price, but noted prices had rebounded since bottoming in September last year at around $88 a tonne.

“It has recovered more strongly than we anticipated,” Chief Executive Nev Power told reporters. He expected an iron ore price of around $120-$130 over the next year, but said prices could go higher if renewed demand from China persisted.

Fortescue posted a net profit of $478 million for the six months ended December, down from $801 million a year ago but broadly in line with analyst expecations.

The company, which carries around $12 billion in long-term debt, also said it was on track to draw up a shortlist of potential buyers for a stake in its port and rail unit by early March.

Analysts estimate Fortescue could raise as much as $5 billion for a 49 percent stake in the unit, depending on the nature of a deal.

Power said the company was in no rush to offload the asset, although Chief Financial Officer Steve Pearce said it remained committed to deleveraging its balance sheet.

Iron ore shipments rose 32 percent to a record 35.7 tonnes for the half-year, partly offsetting price volatility.

Fortescue did not pay an interim dividend and said it would review the situation after its full-year results. Its shares were trading down 3.6 percent at A$4.995 at 0329 GMT in a flat broader market.

Power said the iron ore price had picked up due to increased confidence in urban development programs in China, restocking and a significant reduction in supply from India.

Spot iron prices are currently around $157 a tonne , and have averaged $152 a tonne so far in 2013 compared with the July-December 2012 average of $118 a tonne.

Fortescue, which sells its ore at a roughly 12 percent discount to the benchmark spot price carried cash mining costs of $50.48 per tonne in the December quarter.

Fortescue has reinstated expansion work on its promising Kings deposit after deferring the work last September. The project will add 40 million tonnes a year to its overall yield.

Power said a target to boost production capacity to 115 million tonnes per year by the end of March had been pushed back to mid or late April due to heavy rains that have slowed work at its Firetail mining project.

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