Pilbara housing costs fly in ointment for Fortescue

Fortescue Metals Group has reported a bumper net profit after tax of US$801m for the six months to end December 2011, up 155 per cent on the year before. However, high housing costs in Port Hedland are pressuring its budget for expansion.

Stockpile base concrete pour in December 2011 at Christmas Creek, part of FMG’s expansion to 155mtpa.

Fortescue’s revenues rose by a third as volumes of iron ore shipped rose strongly to 27.1mt, with the first Christmas Creek ore processing facility hitting its straps.

The company realised average iron ore sales prices of US$139 (dmt), well down from market peaks of around US$170 tonne but above October 2011 lows of US$120/tonne.

While Fortescue is in the middle of an expansion programme – across mines, port and rail – which will boost capacity to 155mtpa, the company noted that accommodation shortages in Port Hedland have become more severe.

In consequence, the company will spend an extra $200m on housing and also remedial works associated with Cyclone Heidi.

Fortescue still expects to complete its US$8.4bn expansion by the end of June 2013, with the extra housing costs intended to be absorbed by project contingencies.

Meanwhile, the Australian Financial Review announced during the week that diversified Canadian miner Teck Resources has accumulated a 2.9% stake in Fortescue.
Contact: www.fmgl.com.au