FMG to reinvest dividends PDF Print E-mail
Thursday, 20 December 2012 09:14

Fortescue Metals Group has launched a dividend reinvestment plan that could have saved the miner as much as $82 million cash this year.


Analysts said the miner could have saved as much as $82 million cash this year if founder and billionaire chairman Andrew Forrest (pictured) had decided to take shares rather than a twice-yearly cheque, and described yesterday's move as Fortescue's latest effort to curtail its cash expenditure at a time of see-sawing iron ore prices.

The push by Fortescue has so far generated more than $500 million from asset sales as well as benefits from a massive internal cost cutting exercise.

A spokeswoman for Fortescue said yesterday the introduction of the DRP "reflects the natural maturing of Fortescue". When asked, she did not deny that capital management was part of the miner's reasoning for the DRP.

Three months ago Fortescue was heavily criticised by analysts for $125 million in proposed dividend payments around the same time as it was scaling back its Pilbara expansion plans and considering asset sales amid a slump in iron ore prices.

Fortescue had announced a four cents a share final dividend in August, payable in October.

The miner paid out just under $250 million in dividends this calendar year, announcing an interim four cents a share payment in February followed by the final dividend. It is unclear how many shareholders Fortescue expects will take up the DRP.

Mr Forrest, as Fortescue's biggest shareholder with a stake of about 33 per cent, could not be contacted last night. Controlling just over one billion Fortescue shares, Mr Forrest's take of dividend payments this year was $81.7 million.

If Mr Forrest elects for cash rather than participating in the DRP, his stake will be diluted marginally, depending on the participation of the other shareholders.

According to WestBusiness _calculations, if the Fortescue DRP had been in place for the final 4¢ dividend the miner would have issued a maximum of 37.6 million shares. If every shareholder other than Mr Forrest participated in the DRP, his stake in Fortescue would have been diluted from 32.78 per cent to 32.51 per cent.

Although Fortescue has given no indication of its dividend intentions for the first half of this financial year, next year is expected to see the miner at the peak of its projected capital expenditure.

Fortescue is expected to carry $10 billion of net debt at the peak of its Pilbara growth spurt and is considering whether to resume construction of the Kings mine, which will boost production volumes and should lower group cash costs.

Assuming dividend payments remain at the same level as in 2012, and only 30 per cent of shareholders take up the scheme for the interim dividend, Fortescue would conserve about $37 million in the first half of next year.

Fortescue shares yesterday continued their rally to close up 1.3 per cent, or six cents, to $4.66.


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