FMG - Fortescue Ltd

[nulla nulla]

Thank you for all the responses. I have taken a couple of parcels and am prepared to ride out the storm.....for now.

 

[rimtas]

Let me put it this way.


'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

Yep...after China was falling for more than 5 years now, everybody seems to be very good for projecting further price falls on everything. What is even more interesting, they say that " downturn is about to happen soon" , as if the china was rising in the past years.... Doom and Gloom at the bottom, this is classic. Analysts are especially attracted to this kind of behaviour as herding impulses tells them that it is dangerous to say and analyse anything that is not in line with a trend...

Iron ore is also quite long in downtrend, but with China already bottomed and a new massive advance underway, steel consumption, demand for materials will rise also. Don't be late to jump in the train that just have left the station....


I don't know which stocks will rise on ASX in relation to this (maybe none) , but probably those that have exposure to China markets, and this tells me that one of the sectors could be miners... They are also correcting quite a long time, and with a giant BHP in a large scale Triangle which foretells me that uptrend is not finished yet, miners are set to soar along with upcoming medium term China bull...(in a bear market)

If you have direct access to China markets, it is better to buy stocks on SSE rather than through indirect relation from AUS companies, as ASX further bull is upon big question now....

 

[notting]

Yep...after China was falling for more than 5 years now, everybody seems to be very good for projecting further price falls on everything. What is even more interesting, they say that " downturn is about to happen soon" , as if the china was rising in the past years.... Doom and Gloom at the bottom, this is classic. Analysts are especially attracted to this kind of behaviour as herding impulses tells them that it is dangerous to say and analyse anything that is not in line with a trend...

Dude this is a stock forum.
I have been calling China down for 6 years and that's exactly what has happened.
It's irrelevant what the lying corrupt Chinese dictator thieves say about Chinese growth and miraculous bullsh$t economy and so forth.
Where else have you seen a so called economy expand at between 8 and 10 percent for 5 years whilst the stock market does a 5 year run in one direction - DOWN!!!

 

[Value Collector]

Dude this is a stock forum.
I have been calling China down for 6 years and that's exactly what has happened.
It's irrelevant what the lying corrupt Chinese dictator thieves say about Chinese growth and miraculous bullsh$t economy and so forth.
Where else have you seen a so called economy expand at between 8 and 10 percent for 5 years whilst the stock market does a 5 year run in one direction - DOWN!!!

Has China's economy dropped below where it was 6 years ago yet?


I mean if a stock were $10 and you say its going down, then 6 years later it drops from $30 to $25, you can hardly claim you were right.

 

[nulla nulla]

We managed to extract ourselves from two (2) parcels with modest profits early in the week when FMG spiked up to the inter-day high of $4.11. However the subsequent collapse to $3.72 has seen us so far down the mine we can no longer see the light at the top of the shaft. Anyone got a torch?

 

[nulla nulla]

Hmmm.......at $3.58 close ($3.50 inter-day low) I think that light at the top of the shaft went out. A question for the TA and chartist experts, is this the capitulation stage?



I noticed an article in todays paper that China thinks the miners are over estimating the future demand for steel. More cold water for the iron ore producers or brinkmanship to keep iron ore prices down?

 

[skc]

Hmmm.......at $3.58 close ($3.50 inter-day low) I think that light at the top of the shaft went out. A question for the TA and chartist experts, is this the capitulation stage?

View attachment 59521

I noticed an article in todays paper that China thinks the miners are over estimating the future demand for steel. More cold water for the iron ore producers or brinkmanship to keep iron ore prices down?

Move your chart's vertical scale such that the current price is in the middle of the chart. That way you won't accidentally perceive the bottom edge of the chart to be the bottom.

FMG touched $3 back in 2012 and 2013 so in all likeihood it will gravitates towards there. Back then the iron ore prices were higher, but FMG now has slightly less debt and more production. According to UBS, FMG's breakeven cost is US$74. So the margin is getting a bit thin. We haven't seen any articles on the death of FMG yet so... either people have forgotten or the worse will come when those articles start to surface.

As to Chinese brinksmanship on iron ore prices? I think iron ore price is still very high relative to historical standards, and it looks like it is the deliberate capacity expansion by the big miners that drove down prices (and drove less efficient operators to the grave). A great illustration of capitalism at work!

 

[ftw129]

Hmmm.......at $3.58 close ($3.50 inter-day low) I think that light at the top of the shaft went out. A question for the TA and chartist experts, is this the capitulation stage?

View attachment 59521

Hi Nulla Nulla,

It really depends on your investment time frame. If you're a trader that wants to get in and out quickly then yesterdays low may be a punt but that's all it is because your chart just looks deadly. Not pretty at all and not something you'd want to be putting much cash on that you weren't wanting to part with in the short term.

For any meaningful analysis it really helps to zoom out and look at the weekly chart. Short term daily charts are more for traders with a view of no more then a few weeks.



I have been watching FMG for a long time but it is not a stock that gives clear technical areas of support and resistance. I feel like I forced these lines on because the areas of support and resistance were not clear until I drew the lines in (something that I've learned does not suit my own risk tolerance but that's another story...).

As to your question, I don't see any cause for REAL capitulation until another 50% reduction of the share price and even more. There is a real possibility, that if the stock sees some very strong pressure, that it could test the 2008 low and create a new low, which is where REAL capitulation happens. Call it insane, call it ridiculous and impossible but i've seen this happen many times before.

That's a longer time frame however. In the short term, odds are it will bounce around these levels between here and $2.50. That's exactly what I don't like about FMG. It's levels of support and resistance have very wide margins, meaning that the stock regularly goes passed them by 5-10% before turning around, sharply.

Scaling in to stocks like this is the only way to reduce the pain as they are going down, if you are an investor for the longer term and you are confident in the future of the business. I have added my own lines and amounts that I'd be comfortable chucking in BUT even though we are using technical analysis here, this is still a punters game. You are only putting on an amount that you are willing to lose.

When REAL capitulation hits, it's unquestionable. You'll know. NCM is an interesting one to watch over the next few months .

Hope that helps someone.

(The chart and and information posted is purely my own opinion and should not be taken as advice. I am not licensed to give advice. You make your own decisions at your own risk)

 

[ftw129]

Hi Nulla Nulla,

It really depends on your investment time frame. If you're a trader that wants to get in and out quickly then yesterdays low may be a punt but that's all it is because your chart just looks deadly. Not pretty at all and not something you'd want to be putting much cash on that you weren't wanting to part with in the short term.

For any meaningful analysis it really helps to zoom out and look at the weekly chart. Short term daily charts are more for traders with a view of no more then a few weeks.

View attachment 59524

I have been watching FMG for a long time but it is not a stock that gives clear technical areas of support and resistance. I feel like I forced these lines on because the areas of support and resistance were not clear until I drew the lines in (something that I've learned does not suit my own risk tolerance but that's another story...).

As to your question, I don't see any cause for REAL capitulation until another 50% reduction of the share price and even more. There is a real possibility, that if the stock sees some very strong pressure, that it could test the 2008 low and create a new low, which is where REAL capitulation happens. Call it insane, call it ridiculous and impossible but i've seen this happen many times before.

That's a longer time frame however. In the short term, odds are it will bounce around these levels between here and $2.50. That's exactly what I don't like about FMG. It's levels of support and resistance have very wide margins, meaning that the stock regularly goes passed them by 5-10% before turning around, sharply.

Scaling in to stocks like this is the only way to reduce the pain as they are going down, if you are an investor for the longer term and you are confident in the future of the business. I have added my own lines and amounts that I'd be comfortable chucking in BUT even though we are using technical analysis here, this is still a punters game. You are only putting on an amount that you are willing to lose.

When REAL capitulation hits, it's unquestionable. You'll know. NCM is an interesting one to watch over the next few months .

Hope that helps someone.

(The chart and and information posted is purely my own opinion and should not be taken as advice. I am not licensed to give advice. You make your own decisions at your own risk)

(I'd like to also add that my chart and the levels I drew representing levels for entry are not what I personally do or am going to do. Stock trading is no longer my main game. I do however keep a "reserve" of cash aside for times of "compelling opportunity". That is why my technical analysis can come across as a bit extreme for some people that are invested in these things (as you may see in a few of the other threads that I've contributed in). I'd like to make it clear that my own criteria for entry would be after a clear capitulary low, followed by clear stabilisation of the stock price and a good sign that the stock is beginning to resume a healthy and sustainable trend. This means that I will almost always miss out on the first 10, 20 even 30% of a stocks recovery price. The diagrams, chart and ideas above are purely there for illustration purposes only.)

 

[Wysiwyg]

FMG down near 4% today at $3.32 with prominent past support/resistance around $3.28. Low volume today so far but that could be because of a public holiday for Labor Day.

 

[Value Collector]

As of last week, FMG has become my second largest holding, making up 25% of my portfolio.

I couldn't resist loading up at current levels, by my calculations even on the current low iron price and reduced profit margin they still represent very good value, and if the iron price creeps up over the next year and their profit margins increase to where they can clear $20 of more profit a tonne, I can see them being worth significantly more than they are now, at the moment I see them as having the biggest profit potential in my portfolio.

The biggest risk off course is the iron price, if it hovers at current levels, we should do ok, if it rises to say $85 over the next 12months, we should do brilliantly, if it sits less than $60 for a prolonged period, we may be in trouble though.

So there is so risk to my position, but I am pretty confident the iron ore price will stabilise in a region where FMG can make sustainable margins, and if it does, the current price represents great value.

Happy to patiently hold this one.

 

[CanOz]

As of last week, FMG has become my second largest holding, making up 25% of my portfolio.

I couldn't resist loading up at current levels, by my calculations even on the current low iron price and reduced profit margin they still represent very good value, and if the iron price creeps up over the next year and their profit margins increase to where they can clear $20 of more profit a tonne, I can see them being worth significantly more than they are now, at the moment I see them as having the biggest profit potential in my portfolio.

The biggest risk off course is the iron price, if it hovers at current levels, we should do ok, if it rises to say $85 over the next 12months, we should do brilliantly, if it sits less than $60 for a prolonged period, we may be in trouble though.

So there is so risk to my position, but I am pretty confident the iron ore price will stabilise in a region where FMG can make sustainable margins, and if it does, the current price represents great value.

Happy to patiently hold this one.

Wow.....nerves of....well...steel

 

[Value Collector]

Wow.....nerves of....well...steel

We all have our opinions, and when you feel your right you have to back yourself, no point being right if you don't have a position, or only have a token position.

Generally I am pretty patient, and I don't mind taking a contrarian position if I think the basic fundamentals of the situation are in my favour, I don't mind if it takes 2- 3 years for these sorts of positions to play out, short term volatility doesn't worry me in the slightest, my biggest gains have always been in positions that most people thought were crazy, at the time, but that's just how I roll, I care about the basic economics, not popular opinion.

Based on my research, and the thinking I have done about Iron ore and FMG's assets, I believe that when the iron ore price stabilises (and it will), it will be in a range that will be sustainable for FMG, and it may even be in a range where FMG can make a really good profit of more than $20/ tonne, if that's the case, todays share price will seem like peanuts, even if they are stuck earning $5 - $10 / Tonne they are great value.

 

[nulla nulla]

We all have our opinions, and when you feel your right you have to back yourself, no point being right if you don't have a position, or only have a token position............

Might have to wait out a couple of dividends along the way before our positions come good. Of course, the oversupply of iron ore, slowing Chinese Growth and the level of debt are all negatives for FMG. However the current share price is an oversold price compared to the likes of BHP and RIO,in my opinion. FMG is one of the most shorted shares on the ASX. When the shorters start closing out their positions the price could jump quickly and be more in line with the other miners. Time will tell.

 

[notting]

Yet when compared with the like of BCI which has little debt and produces at a similar cost, FMG could go below a dollar with all it's debt, it could even go under if IO does not recover.

 

[Value Collector]

Yet when compared with the like of BCI which has little debt and produces at a similar cost, FMG could go below a dollar with all it's debt, it could even go under if IO does not recover

Bci is nothing compared to Fmg.

Fmg has 4 young mines that are massive compared to Bci, an enviable infrastructure position, large resource base, plenty exploration acreage and potential large scale projects.

The infrastructure is key, it is hugely valuable, owning mines is only half the story, hence why fortescue take a pound of flesh from every tonne Bci produce.

Fmg could sell the infrastructure to an infrastructure company, clear their debt and still be in a better position than Bci.

 

[notting]

Fmg could sell the infrastructure to an infrastructure company, clear their debt and still be in a better position than Bci.

Dude! You don't really believe that.
For a start if the current price is the new normal then there would be no one wanting to buy 8 billion dollars of infrastructure and move it to God knows where for God knows how much and re set it up. Move the railway lines too.
Nope. You don't think so.
Further, no one would pay the amount needed to cover FMGs debt, for it, even if it could be relocated economically.

 

[Value Collector]

Dude! You don't really believe that.
For a start if the current price is the new normal then there would be no one wanting to buy 8 billion dollars of infrastructure and move it to God knows where for God knows how much and re set it up. Move the railway lines too.
Nope. You don't think so.
Further, no one would pay the amount needed to cover FMGs debt, for it, even if it could be relocated economically.

Who is saying anything about moving it? FMG's Infrastructure is extremely valuable where it is, doing the job it's doing.

FMG owns 3 main groups of assets.

1, operating mines ( 4 of them)
2, A railway network
3, A 5 berth port

Each one of these assets can operate as it's own stand alone business.

eg, FMG could retain ownership of it's mines, but sell the Port and the railway to two separate companies, who then continue to operate the infrastructure charging a toll on each tonne they ship for FMG and BCI or any other future project in the area.

or FMG could sell it's mines and retain the infrastructure and just be a transport infrastructure company earning a shipping toll on tonnes transported from existing mines and future projects over the next 100 years.

They could also package up and sell some mining infrastructure eg processing plant, power plants, mining fleet etc. there is plenty of options for them to reduce debt if needed.

As a shareholder though, I don't want them to sell off their infrastructure, because it is the reason I prefer them over the other smaller miners, because the infrastructure will still be in place and making money long after their current mines are depleted.

 

[notting]

Well all that isn't worth much if the mine is running at a loss, no one in their right mind would buy it. You can't run at a loss for 100 years and the mine would never be 'active' for 100 years regardless of any scenario 25 at best.

 

[Value Collector]

Well all that isn't worth much if the mine is running at a loss, no one in their right mind would buy it. You can't run at a loss for 100 years and the mine would never be 'active' for 100 years regardless of any scenario 25 at best.

they are not running at a loss yet, but hence why I made reference to prices remaining sustainable.

commodities are cyclical, high prices won't stay around forever, and neither will low prices, and if there is a part of the world that's going to be the lowest cost producer and be the base for sustainable iron ore production, it the Pilbara, and FMG's infrastructure is there.