Fortescue Metals flags dividend boost

Fortescue Metals is likely to join mining giant Rio Tinto in raising dividends as the price of iron ore remains elevated.

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The miner’s chief executive Nev Power said on Tuesday that with the company enjoying strong margins on the back of improved iron ore prices, it needs to balance returns for debt holders and shareholders.

“We flagged at the time of the interim dividend that we would be reviewing the payout ratio at the time of final dividend. The board will consider this in two weeks,” he said on the on the sidelines of the Diggers and Dealers conference in Kalgoorlie, Western Australia.

Fortescue currently has a payout ratio of 30 to 40 per cent of net profit, and declared a sharply higher interim dividend of 20 cents a share in February, representing 38 per cent of profit.

Earlier this month, Rio Tinto paid a record interim dividend after its underlying half year profit more than doubled due to stronger commodity prices.

The higher returns reflect a reluctance among big miners to splash money on new mines or businesses, and come on the back of higher but volatile prices of the steel making ingredient, helped by rising demand from China’s steel industry.

Iron ore currently trades around $US75 per tonne.

“The Chinese steel industry has maintained production consistently around 800 million tonnes and we believe it will do that for decades to come,” Mr Power said.

He attributed the recent volatility in the iron ore price to significantly larger stocks at Chinese ports in recent months, but said he expects those stocks to taper over the next 6-12 months and reduce some of that volatility.

The miner last month said it expects to trim costs further this financial year and is targeting steady iron ore shipments in 2017/18.

Fortescue will release full-year results on August 21.

Its shares dropped 10 cents, or 1.7 per cent, to $5.77 on Tuesday.