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UPDATE 1-Fortescue stays confident on China as H2 profit rises
August 23, 2012 / 2:50 AM / 5 years ago

UPDATE 1-Fortescue stays confident on China as H2 profit rises

* H2 net profit up 8 pct to $758 mln vs $716 mln consensus

* Sees benefits from mining boom continuing for some time

* Says selling all ore, sees price recovery to $120-150/T

* On track to ramp up production to 155 mln T/yr by mid-2013 (Adds comments)

Aug 23 (Reuters) - Australia’s Fortescue Metals Group remained confident about the prospects for a pick-up in Chinese demand and prices for iron ore after posting a stronger-than-expected 8 percent rise in second-half profit on Wednesday.

With iron ore prices having sunk to their lowest levels since December 2009 on worries about Chinese growth, investors are nervous Fortescue may face a funding shortfall for its $9 billion project to triple its annual operating rate to 155 million tonnes by July 2013.

Australia’s no.3 iron ore miner put on a brave face, saying it remains confident China’s demand for the key steel-making ingredient will improve later this year as steel output picks up on the back of government moves to boost infrastructure spending.

“In the short term we have seen an overrun of steel supply capacity and that has driven a reduction in steel prices,” Chief Executive Nev Power told reporters.

“We expect to see iron prices return to the $120 to $150 range in the short-term to medium term.”

Iron ore with 62 percent iron content .IO62-CNI=SI, the industry benchmark, fell 2.7 percent to $106.40 a tonne on Tuesday, its weakest since Dec. 16, 2009, based on data from the Steel Index.

The slowdown in China and corresponding falls in prices for iron ore, coal and other resources has prompted major miners including BHP Billiton and Xstrata to scale back projects, with BHP shelving a planned $20 billion expansion of its Olympic Dam copper and uranium mine.

On Thursday, Australia’s resources minister said the boom that had shielded the country’s economy from the global financial crisis had ended.

Fortescue sounded a more upbeat note, hailing a “spectacular” year and saying the boom was not over by any measure.

“There is a boom and it’s continuing and those volumes will continue in the future, bringing enormous benefits to Australia,” Power said

Net profit for the six months to June rose to $758 million from $705 million a year earlier, as calculated by Reuters off full-year figures. Analysts had expected a second-half profit of $716 million, according to Thomson Reuters I/B/E/S.

Fortescue shares steadied at A$4.15 on Thursday, valuing founder Andrew “Twiggy” Forrest’s holding of about one billion shares at more than A$4 billion.

The stock has slumped by about a third from a high of A$6.18 in March against a 2 percent gain in the broader market due to concerns about soft iron ore prices sapping the miner’s capacity to fund its ambitious expansion. (Reporting by Sonali Paul in Melbourne and Lincoln Feast in Sydney; Editing by Edwina Gibbs)

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