February 19, 2019 / 11:39 PM / a year ago

UPDATE 3-Australia's Fortescue beats estimates as iron ore pricing improves

* Average realised price at $47 vs $40 for previous half

* China steel makers turn to cheaper ore as margins fall

* Fortescue says no capacity for big sales boost near-term (Adds comments from chief executive)

By Melanie Burton

MELBOURNE Feb 20 (Reuters) - Australia’s Fortescue Metals Group blew past estimates for its first-half profit on Wednesday on the back of higher prices for its iron ore, adding further fuel to a share price rally following constraints on Brazilian output.

The world’s fourth-biggest iron ore miner rewarded shareholders by nearly tripling its interim dividend to A$0.30 a share, including a special dividend, reflecting confidence in the outlook for iron ore prices.

The result sent its shares to two-year highs, in line with multi-year price peaks for iron ore miners after a deadly iron ore tailings dam collapse in Brazil last month raised supply concerns and pushed up prices for the steel making ingredient by 13 percent.

Net profit for the six months to Dec. 31 came in at $644 million, down from $681 million a year ago, but soared past the market consensus around $546 million.

“A good solid set of numbers and we definitely like the results,” said analyst David Coates of Bell Potter in Sydney.

Shares in FMG jumped as much as 7.6 percent, the highest since March 2017. BHP Group hit 7-and-1/2 year highs on Wednesday while Rio Tinto hit the highest in more than a decade.

Analysts have speculated that Fortescue could benefit by feeding extra supply into the seaborne market, but Chief Executive Elizabeth Gaines said ‘material’ incremental tonnages were unlikely in the short-term given a constraints at its ore processing facilities.

Fortescue also stepped up sales of its new medium grade 60.1 percent West Pilbara Fines product, which contributed to a 24 percent improvement in margins on the December half, Gaines said.

“The introduction of West Pilbara Fines combined with strengthening iron ore markets and demand for our products generated strong margins,” she said.

Fortescue paid a A$0.19 a share interim dividend, up from A$0.11 a share last year, as well as special dividend of A$0.11 per share.

RBC said in a report Fortescue maintained a strong balance sheet.

“As such, we believe any continuation of elevated iron ore prices could translate into additional returns to shareholders,” it said, maintaining a Sector Perform rating.

The deadly mine disaster in Brazil that has curtailed Vale SA’s production is expected to prompt buyers to take more Australian iron ore.

Fortescue said it realised $47 a tonne for its iron ore in the December half, up from $40 a tonne in the previous half. Chinese steel mills have turned to Fortescue’s lower grade and mid grade iron ore as their steel margins have tightened.

Reporting by Melanie Burton, additional reporting by Nikhil Kurian Nainan and Ambar Warrick in Bengaluru; editing by Richard Pullin

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