FORTESCUE Metals Group has turned the corner, notching up a 12 per cent increase in annual profit as it prepares to make its first major debt repayment.
The heavily indebted iron ore miner has grown annual profit by $1.75 billion on the back of higher iron or prices and strong steel demand, prompting the board to declare a better than expected dividend.
But the improved cash position has led analysts to question why the company needs to push ahead with the partial sale of its port and rail assets before repaying some of its $10 billion debt.
Chief executive Nev Power said now was a good time to increase the dividend to 10 cents per share, up from four cents at the same time last year.
"We felt the dividend was right on the mark," Mr Power told analysts on Thursday.
"It reflects the strong performance that we've had."
It comes as Fortescue approaches the end of its major expansion while the iron price hovers around $US140 per tonne.
"It also reflects the fact that we didn't pay an interim dividend," Mr Power said.
Fortescue's cash balance of $US2.2 billion ($A2.46 billion) at June 30 reflected a rapid decrease in capital expenditure, and effectively commenced the company's debt reduction program, he said.
The company said it's likely to begin paying hundreds of millions of dollars off its debt this calendar year.
The 155 million tonnes per annum (mtpa) production run rate was expected to be achieved by the end of December 2013, following the commissioning of Kings mine, the company said.
Fortescue added that its proposed sale of a minority share in The Pilbara Infrastructure, its rail assets in the Pilbara, would only be undertaken at the right price and under the right terms.
"We haven't had anybody meet our expectations in terms of value and terms," Mr Power said. The company would continue with non-core assets sales, he said.
Morningstar resources analyst Mathew Hodge said the strong result was not a surprise given the favourable iron ore price in the second half and a seven per cent boost in first half Chinese steel production.
"I would argue those kind of growth rates are completely unsustainable," Mr Hodge said.
Mr Hodge expects the iron ore price to fall as demand slows and large amounts of iron ore come to market.
"If the iron ore price goes back to $US100 the complexion of this company changes completely," he said.
Fortescue shares were up 16 cents, or 3.9 per cent, at $4.25 at 1600 AEST.
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