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Australia's Fortescue First-Half Profit Nearly Triples

Fortescue Metals, Australia's third largest iron ore miner, more than doubled its half-year net profit as it ramped up sales to China, but cut its production guidance for the current quarter due disruptions caused by bad weather.

Open cast mining for iron ore.
Tim Graham | The Image Bank | Getty Images
Open cast mining for iron ore.

Fortescue, like other iron ore miners, has established strong ties with Chinese steel mills, which over the last several years have become the world's biggest buyers of iron ore.

Prices for iron ore came under pressure in the final quarter of 2011 as questions persisted over China's future growth prospects.

That did little to deter Fortescue and mega-producers such as Rio Tinto and BHP Billiton from investing to expand output in Australia's western iron range.

"The result, coupled with a downgrade in forecast third quarter production, means our fiscal 2012 net profit after tax forecast is likely to decline but there is no change in our long term view at this stage," said Morningstar analyst Mathew Hodge.

Net profit for July-December 2011 rose to a record $801 million from $314 million a year earlier and under a consensus forecast of $840 million.

Fortescue expressed confidence in the outlook for China, the buyer of virtually all its iron ore.

"Importantly, iron ore prices rebounded, highlighting the fundamental shortfall of seabourne supply against a continuing strong demand profile from developing countries," Fortescue chief financial officer Stephen Pearce said in a statement.

Iron ore prices dropped to less than $117 a metric ton in late October but have largely been on an upswing since. Iron ore with 62 percent iron content stood at $139.60 a metric ton on Wednesday, according to Steel Index.

Production Guidance Cut

In midday trading on Wednesday, Fortescue shares were down 2.5 percent to A$5.47, bucking a modest uptrend in the wider market .

Fortescue's shares have jumped 11 percent to a five-month high over the past week after a mystery buyer snapped up at least a 2.9 percent stake.

Fortescue said it was reducing its guidance on the current quarter's production to between 13 million and 13.5 million metric tons versus 13.75 million previously, citing delays to shipments when Indian ocean export terminal Port Hedland was temporarily closed due a cyclone in January.

It maintained its guidance of 55 million metric tons shipped in fiscal 2011/12 ending June 30.

Fortescue said it was rapidly building infrastructure expand to an operating rate of 155 million metric tons per year by the end of June 2013.

But it also warned that accommodation limitations in Port Hedland had become more severe, resulting in the need for additional investment in housing for its workforce.

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