FMG - Fortescue Ltd

[skc]

The debt reduction at Fortescue continues, they have announced today that

"Fortescue Purchases Christmas Creek Ore Processing Plants"

"The buy-out of the finance lease for the OPFs continues Fortescue’s ongoing debt reduction program."

I expect we will see more of this kind of thing as they aim to knock out their most expensive debts, The free cash flow being produced at the moment is going to mean they will be reducing their debt loads quite rapidly.

this debt buy out should also have a positive effect of the cost of production, because they will no longer have the contracting company that ran the asset as a middle man, as they have taken over the running of the OPF them selves.

I think this was somewhat unplanned and opportunistic. MIN (the crushing contractor) was kicked off the site back in Sept for some sort of compliance / safety failure. FMG took the opportunity to acquire the operations under the contractual terms after much negotiations.

And while it takes a lease liability item out of the balance sheet, it adds opex to FMG's operations. So there's some net benefits - namely the margin previously enjoyed by MIN. MIN fell about 7% on the back of this news.

 

[Value Collector]

I think this was somewhat unplanned and opportunistic. MIN (the crushing contractor) was kicked off the site back in Sept for some sort of compliance / safety failure. FMG took the opportunity to acquire the operations under the contractual terms after much negotiations.

And while it takes a lease liability item out of the balance sheet, it adds opex to FMG's operations. So there's some net benefits - namely the margin previously enjoyed by MIN. MIN fell about 7% on the back of this news.

Fortescue took control of the OPF from MIN following the investigation into the death at the site. (not the most recent death at cloud breaks vehicle work shop, but the last one)

However today's release is related to them buying out the finance associated with the plant.

 

[skc]

Fortescue took control of the OPF from MIN following the investigation into the death at the site. (not the most recent death at cloud breaks vehicle work shop, but the last one)

However today's release is related to them buying out the finance associated with the plant.

Yes. Buying out from a subsidiary of MIN. No doubt FMG flexed some muscle in the negotiations, since MIN has been kicked off site.

 

[Value Collector]

Yes. Buying out from a subsidiary of MIN. No doubt FMG flexed some muscle in the negotiations, since MIN has been kicked off site.

No need for muscle, they had an early buy out clause, and it makes sense, these leasing finance contracts are normally >9% interest, plus a fatty operating margin I am guessing.

 

[tinhat]

Yes, Ouch for me as I hold a small parcel of MIN which tanked today. Big loss of contracted cash flow for them. It will be interesting to hear of what the agreed amount is for the buy-out.

 

[Value Collector]

I expect we will see more of this kind of thing as they aim to knock out their most expensive debts, The free cash flow being produced at the moment is going to mean they will be reducing their debt loads quite rapidly.

.

Well I didn't have to wait long, again today



Fortescue continues debt reduction program with repayment of US$1.6 billion of
Senior Unsecured Notes
Fortescue Metals Group (ASX: FMG, Fortescue) has issued two voluntary redemption
notices for:
i) the remaining US$1.04 billion Senior Unsecured Notes due in 2015; and
ii) the US$600 million Senior Unsecured Notes due 2016 (collectively the
“Notes”).
The Notes will be redeemed on Friday March 14, 2014.
Today’s announcement comes less than a month after Fortescue repaid an initial
US$1.0 billion of the 2015 Notes and takes total debt repayments since November 2013
to US$3.07 billion, including the recent repayment of the CSI lease facility.

 

[Valued]

This just went into a trading halt. I was just crunching the numbers for going long here and I was about to take a look at the option pricing and I saw the halt. It's probably an ASX price query.

Edit: Nevermind, apparently we are good to go again. No reason for the very brief halt given though.

 

[Ves]

This just went into a trading halt. I was just crunching the numbers for going long here and I was about to take a look at the option pricing and I saw the halt. It's probably an ASX price query.

Edit: Nevermind, apparently we are good to go again. No reason for the very brief halt given though.

ASX listing rules.

http://www.asx.com.au/documents/about/guidance-note-16-compare.pdf

See below:

Halts imposed by ASX on receipt of market sensitive announcements
Under ASX Operating Rule 3301(a), ASX may implement a halt to trading in an entity’s securities if it receives an announcement from or about the entity which it considers to be market sensitive.
If the announcement relates to a takeover offer by or for, or a scheme of arrangement involving, the entity, the halt will last for approximately one hour. In all other cases, the halt will last for approximately 10 minutes. The purpose of the halt is to allow the market to absorb and react to the information in the announcement. Trading will then resume in the normal way without the entity being required to take any action. This procedure is described more fully in Guidance Note 14 ASX Market Announcements Platform.
Where ASX implements a halt to trading in securities under ASX Operating Rule 3301(a), the securities are placed into a “pre-notice received session state” on the ASX market platform. In that state, ASX market participants are able to place orders for, but are not able to trade in, the securities. Existing orders for the securities in the ASX trading platform are not automatically purged, as they are in the case of a voluntary suspension, but instead remain in the trading platform with the same price/time priority and are available for execution when trading resumes after the halt has been lifted.27 ASX market participants are also able to amend or cancel their existing orders.
Again, under Part 6.1 of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011, whenever ASX places a security into, or takes it out of, a halt to trading under ASX Operating Rule 3301(a), it is required to notify that action to all other licensed market operators in Australia who quote the security and they in turn are required to immediately take corresponding action to place the security into, or take it out of, a trading halt.28
As a matter of practice, whenever ASX imposes a trading halt in a security under ASX Operating Rule 3301(a), it generally also imposes a trading halt in any ASX or ASX 24 exchange-traded options and contracts for difference relating to that security.

 

[Valued]

Ah that's right, there was an announcement. The market doesn't really seem to care about it though. Must not be important/already known.

 

[Value Collector]

Ah that's right, there was an announcement. The market doesn't really seem to care about it though. Must not be important/already known.

two bits of information, nothing major.

1, a company is building a gas pipeline across to FMG's power station so it can switch from diesel to gas

2, FMG has agreed on spending $1,000,000 to explore a neighbours tenements for minerals, By doing this they are taking an 80% ownership interest in the tenement (sounds big, but $1,000,000 is about 6 hours production for FMG)

 

[Valued]

two bits of information, nothing major.

1, a company is building a gas pipeline across to FMG's power station so it can switch from diesel to gas

2, FMG has agreed on spending $1,000,000 to explore a neighbours tenements for minerals, By doing this they are taking an 80% ownership interest in the tenement (sounds big, but $1,000,000 is about 6 hours production for FMG)

Yea, doesn't sound like anything major at all. Thanks for the explanation.

 

[Value Collector]

Very nice half year profit announcement from FMG,

Net profit after tax Profit up 260%
Debt down by $3.1 Billion
fourth mine is now ramping up.

Everything seems to be going well, I am expecting a big rerating of Fortescue over the next 12months. If the Iron ore price holds above $100 / tonne, I can easily see this company be worth well over $10 / share, Probably $15

 

[nulla nulla]

Is now an appropriate time to consider FMG for an entry?

 

[notting]

Is now an appropriate time to consider FMG for an entry?

Absolutely.
Just don't buy any.
Wait till world war three has finished and we need to rebuild the world.
Which will be just enough to take up the current slack in demand vs supply.

In other word ~ SHORT.

 

[systematic]

Gosh I wouldn't say short! Not the worst cheap stock to buy in my opinion!

 

[notting]

Gosh I wouldn't say short! Not the worst cheap stock to buy in my opinion!

Let me put it this way.

Let's say you are lying on the beautiful white sand of 90 mile beach in Queensland sipping on your favorite icy drink in the wonderful sunshine, when suddenly a couple of blokes, one who looks a little like Twiggy the other of Aborigine descent comes up to you with a bucket of sand and says, "Would you like to buy some sand from me?" How much would you want to give him for it?

'Clear and present danger': Australia to be hit as Chinese economy starts unravelling

Read more: http://www.smh.com.au/business/chin...nravelling-20140905-10cs4j.html#ixzz3CPzLZ8ia

 

[Value Collector]

Is now an appropriate time to consider FMG for an entry?

I guess it all depends on the iron ore price, But at $85 a tonne FMG is still worth at least $7.50 in my opinion, and if the ore price goes back above $100 they will be worth a lot more.

I own and intend to hold, I have also recently sold some put option contracts on them, I can't predict the Iron ore price, but at these levels they are still undervalued.

I guess it depends on your holding time frame, if your happy with a long term hold, I think they are a good option at these prices.

 

[systematic]

'Clear and present danger': Australia to be hit as Chinese economy starts unravelling

Read more: http://www.smh.com.au/business/chin...nravelling-20140905-10cs4j.html#ixzz3CPzLZ8ia

I forced myself to skim the article. And what? I look for good investments, not businesses (or industries). FMG could go bankrupt tomorrow, of course. But that article means nothing to my previous opinion.

 

[Value Collector]

The debt reduction at Fortescue continues, they have announced today that

"Fortescue Purchases Christmas Creek Ore Processing Plants"

"The buy-out of the finance lease for the OPFs continues Fortescue’s ongoing debt reduction program."

I expect we will see more of this kind of thing as they aim to knock out their most expensive debts, The free cash flow being produced at the moment is going to mean they will be reducing their debt loads quite rapidly.

this debt buy out should also have a positive effect of the cost of production, because they will no longer have the contracting company that ran the asset as a middle man, as they have taken over the running of the OPF them selves.

In their last update they committed to repaying another $500Million, so the cash generation continues, albeit at a slower rate due to the current Iron Ore price.

 

[Value Collector]

The current Iron ore price decline reminds me of the fall in the oil price when it dropped from near $150 to $40, because of over supply caused by demand shrinkage due to the gfc, it didn't take long to recover back to very profitable levels, and the fall proved to be a great time to get exposure to oil companies with excellent recourses and infrastructure.

I think we are either at that stage or very close in the iron ore sector, and FMG looks like it is the cheapest and has one of the best infrastructure positions.