Fortescue Metals Group Ltd., Australia's third-largest iron ore producer, has been hit by a sharp drop in iron ore prices and rising operating costs despite record shipments. On Monday reported a 40% drop in full-year profit.
Fortescue reported net profit of $6.2bn for the 2022 financial year ending in June, down from a record $10.35bn in the previous year and broadly in line with analyst expectations. Despite the sharp year-on-year decline, it was Fortescue's second-highest profit on record.
Fortescue also reported record iron ore shipments of 189m tonnes in fiscal 2022, but the average selling price was $100 a tonne, down from $135 a tonne in the previous year.
Futures iron ore prices on the Singapore Exchange rose to a record high of nearly $230 a tonne in May 2021, before falling below $100 a tonne in November. On Friday, it was trading near $104 a tonne.
Fortescue, meanwhile, is grappling with rising costs. The company reported a 14 per cent increase in production costs, mainly due to higher prices for Labour, diesel and other consumables.
Mineral Resources Ltd., another Australian iron-ore producer. It also reported on Monday that its net profit after tax fell 64 per cent to A $400m, despite record shipments this year. The company said the "steepest decline in iron ore prices in history" had caused the drop in profits.
To become the world's leading producer of green hydrogen
Under the leadership of founder Andrew Forrest, Fortescue has overseen an overhaul of the company's management, aiming to make the company a major global producer of green hydrogen to meet the global need for a green transition.
Fortescue has said it will spend 10 per cent of annual profits on its green energy arm, Fortescue Future Industries, and aims to produce 15 million tonnes of green hydrogen a year by 2030. However, the company has yet to produce hydrogen on a commercial scale and remains dependent on iron ore for revenues.
Fortescue said on Monday it would invest between $600 million and $700 million in Fortescue Future Industries in the next financial year, up from $534 million in fiscal 2022. Most of that will go towards operating costs, with just $100m for capital expenditure.
Fortescue chief executive Elizabeth Gaines said in a statement that the company was "accelerating its transformation into a vertically integrated green energy and resources company and leading the way in decarbonisation."
