This is a mobile optimized page that loads fast, if you want to load the real page, click this text.

FMG - Fortescue Ltd

Jump to new
fiftyeight said:
Did not expect to see exploration drilling going on and work is going ahead on a new pit.
their goal of $20/tonne. I wonder how close they actually are to that target?
Click to expand...

That is a joke.

As is this -

Mr Forrest said the major miners, Rio Tinto, BHP Billiton and Brazil's Vale, should cap their production in what is an over-supplied market, helping push the price "straight back up to $US70, $US80, $US90".
Click to expand...

In desperation Mr Forrest calls for what could actually be called an illegal cartel.
 
notting said:
That is a joke.

As is this -



In desperation Mr Forrest calls for what could actually be called an illegal cartel.
Click to expand...

He probably forgot that RIO, BHP aims to gain market share at his expense. So there's already a wink and a nudge, but it's at him and not with him.
 
systematic said:
I'm starting to like the look of it as a value pick.
Click to expand...

Are you sure Can you share your thinking and assessment?

I can't see this as a value stock at spot price - they are touch and go in terms of profitability. And it's difficult to forecast long term value without some big assumptions (i.e. guesses) on future iron ore prices. Add to that potential balance sheet issues, FMG doesn't quite fit the conventional thinking of a value stock.
 
banco said:
His lawyers must have had a heart attack when they heard that stupid speech.
Click to expand...

FMG with press release as Nev Power actually consulted lawyers and try to re-interpret what Twiggy said.

I don't really understand the legal context of this... but to me it is hilarious. Consulting facts for a few minutes: FMG actually has the largest increase in supply over the last 4 years. So it's OK for FMG to ramp up product and move down the cost curve, but when BHP and RIO do the same thing, it's bad for the Nation and everyone.

Hypocrite much?

 

It would certainly be a double standard if Mr Forrest called for a cap on production by BHP and RIO while ramping up his own production. However, given that Iron Ore in Australia will eventually prove to be a limited resource, I am surprised that the Federal and State Governments aren't calling for a slowing of supply to improve prices and subsequently their royalties.

If every Australian miner ramps up production, trying to offset a falling price with increased volume, the resources will be exhausted faster. The big losers the Australian Tax payer that gave mining companies extra deductions on their exploration as well as huge rebates on diesel fuel.
 

The anti-cartel provisions are pretty broad in order to catch "wink, wink, nod, nod" arrangements. I don't think when the provisions were drafted they really contemplated a Chairman calling for the creation of a cartel in public though.
 
Must be some late nights for FMG, the ACCC and trade officials!

"Let's get together, cut production, divvy up the market, and raise prices!!" Uh Oh, Whoops! Let's advertise that Australia allows cartels if the output is all export (provided of course we don't discuss price, wink wink). Good thing ACCC isn't holding any conferences and waxing eloquent about their exemplary cooperation with other nations as they fight international cartels. It's a comedy of PR/IR blunders, which makes me wonder if FMG hires the same spin-doctors as Abbott. The company's poor judgement in going public with their desperate plea will not be good for FMG, that's for sure.
 
Bintang said:
skc, do you know if the numbers in the table and chart are adjusted for iron ore quality or are they just based on the bulk tonnages?
Click to expand...

The reference is from BHP presentation to the AJM Conference released on 10/3/2015. Slide 5. Will let you read investigate your own questions.
 
Obviously not the smartest move by Forrest but there is some irony in the current situation where the Saudis are blamed for going to war by NOT restraining their oil production within a cartel.
Or am I the only one to see it that way?
And I wish the royalties were based on moved material, shipped or not.high grade or not, as pointed before the Australian people are the ones paying for the Rio/BHP war.
 
qldfrog said:
And I wish the royalties were based on moved material, shipped or not.high grade or not, as pointed before the Australian people are the ones paying for the Rio/BHP war.
Click to expand...

Most royalties used to be a fixed $ amount per tonne, but the governments changed it to a percentage as the commodities price rose and they wanted a bigger piece of the pie,
 
After reviewing the guidance given in FMG’s last half-year report I think they will be pushing the proverbial uphill from here on if iron ore prices do not recover. Even producing at maximum capacity and assuming all the production can be sold will not pull them out of the hole.
I estimate their breakeven** iron ore price (Platts 62% CFR reference price) to be $58 to $60 per dry metric ton.
(** being the price at which profit before income tax equals zero)

Current Platts price is US$55.86/tonne

I used the following metrics:
Dry/Wet yield = 0.92 mt/mt (derived from Annual report)
Realised price = 0.845 x Platts Ref Price US$/dry mt (derived from Annual report)
Annual equity ore shipped = 160 million wet mt (FMG guidance for 2015)
Unit total delivered cost = US$35/wet mt (FMG guidance for 2015)

Annual finance expense = US$750 million (assumption)
Annual D&A = US$1000 million (assumption)

With the above the breakeven Platt’s price (P) can be formulated as:

P = [35 + 1750/Q]/0.777 US$/dry mt

where Q =annual equity ore shipped (million wet mt)
 
Bintang said:
Annual D&A = US$1000 million (assumption)
Click to expand...

The D&A would be non-cash so the cash breakeven picture is a little bit better. You do have to make some allowance for maintenance capex (which is real cash), but that number should be lower than the D&A figure. I think they must have published guidance somewhere...

Regardless of the above, they are touch and go in terms of generating excess cash. So they are in trouble to repay the debt's capital when it fall due in 2017 (from memory). Having said that, they can manage the interest payment so you'd assume that the lender will not just pull the plug. They will roll the debt over whilst waiting for the iron ore price recovery.
 

Yes, that's why I did the calculation in the manner described since it’s too difficult to figure out what their debt repayment schedule would be and by setting profit before tax equal to zero there is also no tax calculation to consider.
But I can’t imagine they would get away for too long with zero debt repayments, so that’s what would likely happen to any excess cashflow.
And if maintenance capex is included the break even price would just be higher.

I was just after a quick look feel for what kind of price limits would allow them to stay afloat and to do a quick sensitivity on the impact of sales quantity.

If you start to factor in :
1) Possible lower demand from China
2) Oil prices lifting above the current ~$US$50/bbl

….. then the problems just compound even further.

Their unit shipping costs look to be approximately proportional to oil prices by a factor of 0.1, so if oil prices increase to say $75/bbl it will cost them roughly an extra $2.50/wmt.
 
You must log in or register to reply here.

Similar threads

Z
Trading System by Andrew Gibbs - Member of Larry Williams Hall of Fame
4 5 6
Replies
100
Views
26K
zipzap
Z
Andrew Forrest - Tall Poppy or Fall Guy for the duopoly?
Replies
7
Views
4K
DB008
Rolling on expiry day - thoughts?
2
Replies
31
Views
9K
omad
The First Few Days of Day Trading
2
Replies
35
Views
11K
investorpaul
M
What will the market look like in 10 years time?
2
Replies
25
Views
13K
divs4ever
Menu
Log in
Register
Cookies are required to use this site. You must accept them to continue using the site. Learn more...