FMG repaid $3 billion of debt in the 2016 financial year, and has repaid $1.7 billion so far this financial year.
Power said on that basis, the company was slightly ahead in the run-rate of debt repayments, thanks to a strong FY16 and a higher-than-expected iron ore price.
After a challenging start to the calendar year, the iron ore price has doubled over 2016 to more than $80 per tonne currently.
“It’s very nice and we’ll make hay while the sun shines and take the opportunity to earn as much cash as we can and use that to repay the debt,” Power told MNN.
“We’re on that wonderful cycle where everything we do is continuing to improve the business.”
Metalytics Resource Sector Economics’ November 2016 review listed FMG as the lowest-cost producer, narrowly edging out Rio Tinto and BHP Billiton.
“Who would have thought?” Power said.
“I’d have to say, I think the best part of this is that every part of Fortescue has been a strong contributor over the past 12 months or so – every part of the business has done a great job, and that’s very rewarding to see that.
“This $1 billion repayment is a direct result of all the great work of people around the business and all of the improvements that have been put in place, so I think that everyone in Fortescue will see this as the reward for their efforts and great work over the past 12 months."
FMG’s C1 costs for the September quarter were $13.55 per wet metric tonne and full-year guidance is $12-13/wmt.
Despite higher freight rates and oil prices, Power remains confident the company can achieve its goal.
“It is getting harder, and there’s no question that there’s inflationary pressure on costs all around the place,” he said.
The softening of the Australian dollar in the past week to below 73c should help to offset some of the other cost pressures.
“Outside of that, it’s about continuing to focus on productivity and efficiency and how we can continue to improve our business,” Power said.
“And we’re not fixated on that, we just want our business to be as efficient and cost-effective as it can be, so it’s about constantly looking at how we can improve. That continuous improvement ethos is very strong.”
Gross debt will fall to just $4.61 billion after the latest debt repayment.
Net debt stood at $4.2 billion at the end of September with gearing sitting at 33%.
Power said the company’s cash balance should remain at around $1 billion following the repayment.
“We could always continue to review whether we need that level of liquidity in the business, but we’ve taken a very conservative approach and maintained it at about that level,” he said.
“Our strategy has been to accumulate the cash and then repay the debt, so that we’ve always maintained that minimum balance.”
RBC Capital Markets analyst Paul Hissey said the current levels of gearing left FMG well-placed to refinance its remaining $2 billion of 2019 debt if required.
“On our base case (FY18 iron price $63.80/t) we believe FMG can generate $2.2 billion free cashflow in FY18 ($3.6 billion at spot prices), which would assist in possible further debt repayment, capital management, capex or investment in replacement projects,” he said.
FMG shares have gained more than 225% this year and hit a near six-year high of $A6.96 last week.
Shares dropped 3% this morning to $6.11.
