FMG share price rises 2.65% following ‘strong start’ to FY20

It was a good start to FY20 by the looks of things.

Prior to today’s release, bullish activity around the stock saw the Fortescue Metals Group share price rise 5.58%, over the last five trading sessions. And when the market opened today, FMG’s share price rose another 2.18% in the first 15-minutes of trade. General market optimism likely helped, with the ASX 200 also up 39.1pts.

Overall, the first quarter production report shows that Fortescue Metals Group (ASX: FMG) has maintained its world-class cost profile, that shipments were up on a YoY basis (but down QoQ) and that net debt has been lowered significantly in the last quarter.

The broad strokes

FMG’s key metrics all moved well, with Q1 iron ore shipments coming in at 42.2mt, a shade ahead of the average analyst estimate of 42.0mt, according to Bloomberg News. In saying that, while shipments were up on a year-over-year basis (+5%), they were actually 9% lower than in FY19’s fourth quarter.

Ore mined was also lower on a YoY and QoQ basis.

Even so, like iron ore shipments, C1 costs also beat expectations – hitting $12.95 per wmt – compared to the $13.25 per wmt consensus – based on three estimates and according to Bloomberg News.

The top-line view also looks promising for the pure play iron ore miner, with Fortescue’s management commenting that the ‘average revenue received of US$85 per dry metric tonne (dmt), [was] 89 per cent higher than Q1 FY19 of US$45/dmt.’

Net debt has also steadily fallen, finishing the period out at $500m. This compares favourably to the June 2019 period, where net debt stood at $2.1bn.

Speaking to these reductions, Fortescue’s savvy Chief Executive Officer, Elizabeth Gaines, commented that:

‘The combination of operational performance and realised price has generated exceptional operating cashflows and lowered net debt to US$0.5 billion at 30 September 2019. This has provided the capacity to further strengthen the balance sheet through debt reduction and refinancing of the Term Loan on improved terms.’

FMG also used today’s media release to reiterate its FY20 guidance: citing an iron ore shipment range of between 170-175mt, average C1 costs of between $13.25 – $13.75 per wmt and noted that full-year CAPEX was expected to reach $2.4bn.

FMG share price: analysts look uncertain

Regardless of these production and operational achievements, the macro background remains a challenging one – with concerns of a volatile iron ore price in the medium-term still bubbling below the surface. Such a view looks well reflected in the current analyst consensus.

Here, seven analysts rate FMG a buy, while five and ten rate it a hold and a sell respectively, according to Bloomberg News.

Across the other majors, the BHP share price was up 1.13%; and Rio Tinto’s (ASX: RIO) stock also gained 1.25%.

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