Fortescue reported a result that was worthy of a round of applause. The result was surprisingly strong right across the board, but what drove the strength and was most impressive, was the very material productivity improvements the company achieved. The company reduced production unit costs by over 40% over the year, with the C1 measure now down about in line with Rio Tinto and BHP, and guided to reduce further still to US$12-13 per tonne in fiscal 2017. Together with help from a recovery in the iron ore price, the impressive cost-out effort enabled the company to triple earnings. And with a light year of capex, the company was also able to generate very strong free cash flow of US$2.7 billion, which allowed it to reduce debt by US$2 billion to approximately $5 billion, and to triple dividends to 15 cents per share. (Julian Beaumont, Investment Director, Bennelong Australian Equity Partners – a Bennelong boutique)


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