FMG - Fortescue Ltd

[ROE]

A simple view of the world is like this, sometimes simple view is better than complex finance thingy

at the current iron ore price, FMG is in trouble as simple as that, the longer it goes on, the worse it get as it getting closer to its debt repayment date and as the date draw closer it harder and harder for it to refinance debt at a reasonable rate... based on that fact right now why would you want to invest in it because it close to worthless.

now you can predict iron ore may go up or down or what ever but it is still a guessing game
the safest options is you take iron ore price as it is and assume it going to be like that for the next 3-5 years can FMG survive?

FMG refinancing exercise is all about buying time and time is a luxury it doesnt currently have

 

[Miner]

A simple view of the world is like this, sometimes simple view is better than complex finance thingy

at the current iron ore price, FMG is in trouble as simple as that, the longer it goes on, the worse it get as it getting closer to its debt repayment date and as the date draw closer it harder and harder for it to refinance debt at a reasonable rate... based on that fact right now why would you want to invest in it because it close to worthless.

now you can predict iron ore may go up or down or what ever but it is still a guessing game
the safest options is you take iron ore price as it is and assume it going to be like that for the next 3-5 years can FMG survive?

FMG refinancing exercise is all about buying time and time is a luxury it doesnt currently have

IF I take bit of Bacardi and make comment - what about a possible take over by BHP ? Thinking outside the box, ore body, scale of economy and cost reduction with volume of production?
Does it look like a Chinese whisper ?
DNH

 

[luutzu]

IF I take bit of Bacardi and make comment - what about a possible take over by BHP ? Thinking outside the box, ore body, scale of economy and cost reduction with volume of production?
Does it look like a Chinese whisper ?
DNH

I think soon after the South35 spin-off, BHP might take another tilt at RIO then do RIO's job of spinning off a unit or two for them.

 

[banco]

I think soon after the South35 spin-off, BHP might take another tilt at RIO then do RIO's job of spinning off a unit or two for them.

Would be pretty funny in light of Twiggy's cartel comments if BHP did go after Rio.

 

[Bintang]

IF I take bit of Bacardi and make comment - what about a possible take over by BHP ?

At what price?

 

[Miner]

At what price?

ASF does not endorse any price predictions.
So with my hangover, I would say whatever price BHPB likely to offer for FMG would have to be at least 50% more than the current price of offer time.
Andrew Twiggy would not easily give up unless his 40% holding fetches good amount.
All my wishful thoughts

 

[Bintang]

ASF does not endorse any price predictions.
So with my hangover, I would say whatever price BHPB likely to offer for FMG would have to be at least 50% more than the current price of offer time.
Andrew Twiggy would not easily give up unless his 40% holding fetches good amount.
All my wishful thoughts

I doubt that BHPB would be interested unless it was a fire sale with the share price having dropped to almost nothing.

Iron ore prices are going down because China is cutting back demand. At some point FMG might find they can't sell all that they can produce. That plus low iron or prices would surely make them cash flow negative. I can only see the share price going down, down down.

 

[Value Collector]

by my calculations Fmg's current absolute break even price is a little under $50 per tonne.

Their all in cost is $35 / tonne, that includes interest, so when you allow for moisture content and the discount there is still a comfortable margin.

Remember if they are making a $10 margin at $X, just because the price drop by $10 dollars doesn't mean they are breaking even, because the royalties go down.

 

[Bintang]

by my calculations Fmg's current absolute break even price is a little under $50 per tonne.

Their all in cost is $35 / tonne, that includes interest, so when you allow for moisture content and the discount there is still a comfortable margin.

The $35/wet tonne is not their all-in cost. It is only their 'total delivered cost to customers', which does not include interest payments.

Components of total delivered costs as per FMG Annual Report 2014 page 85


Total delivered costs guidance as per FMG FY15 Half Year Financial Results - page 4


They need roughly another US$4.80 per wet metric tonne to cover interest costs.

 

[notting]

They need roughly another US$4.80 per wet metric tonne to cover interest costs.

Interest costs that are relatively low and soon to turn skyward.
What people need to get is that the low cost is achieved through economies of scale, so if miners started slowing production then costs would head up too. Catch 22 for Fotescue. Then, of course, they to have actually pay some of the debt back not just the interest. In short -

They can't.

 

[Value Collector]

The $35/wet tonne is not their all-in cost. It is only their 'total delivered cost to customers', which does not include interest payments.

Components of total delivered costs as per FMG Annual Report 2014 page 85
View attachment 62151

Total delivered costs guidance as per FMG FY15 Half Year Financial Results - page 4
View attachment 62152

They need roughly another US$4.80 per wet metric tonne to cover interest costs.

yes your right, you have to add back the interest, which is reduced to about $4 since the annual report.

However this still puts the break even at about $50 when you factor in reduction in royalties, you also have to factor in that sustaining capital is less than the depreciation due to FMG's assets being quite young, eg they depreciate the paper value of the rail and other infrastructure by more than they have to actually spend to maintain it.

 

[Value Collector]

Interest costs that are relatively low and soon to turn skyward.

Soon? you mean in 4 years time, 2019. They have cash in the bank to cover all the debt due till then. and 4 years is plenty of time for markets to improve and to reduce costs etc.

 

[notting]

Soon? you mean in 4 years time, 2019. They have cash in the bank to cover all the debt due till then. and 4 years is plenty of time for markets to improve and to reduce costs etc.

Let's see what kind of demand there is over the next 12 months amidst the mountains of cheap supply from everywhere.

Cash tends to have a way of vanishing when you begin to lose money.

 

[notting]

shares down
10:53am: Meanwhile... Fortescue Metals Group's Andrew Forrest has lashed out at "immoral" short-sellers, warning attempts to force him to sell his 33 per cent personal shareholding in the iron ore company are futile.

This is called - lashing out with a red herring. The idea is to make people who may be interested in going long think that the short sellers are foolish because Andrew is not leveraged. All the short sellers know that Andrew is not leveraged, as you do Andrew.
We also know, as you do, that it's FMG that is leveraged.
We also know that if there has to be a capital raising you will struggle not to be liquidated to some extent because you most likely will not be able to afford your quota and maintain your % of the company.
This guy is very sly.

He makes sure he slips in a boast about being a million dollar donor and bastion for slave laborers, whilst has been singing the praises of the Chinese for decades. The Chinese are the most brutal slave labor dictators ever seen, not just because of how brutal they are to the workers but because of the scale.
This garbage about the emerging middle class is all on the back of the Chinese Communist dictatorships huge slave labor force.
You have something like 350 million so called emerging middle class raised out of poverty on the back of a billion slaves! It's on a scale the world has never seen before.



These pictures are from a brick works factory where many workers are just plucked off the streets or farms and forced to work. They are guarded by dogs and beaten to death in front of the other workers if they don't work hard enough.
Not unlike the iron factories and all the other factories, you know the ones with nets outside the windows so the workers can't commit suicide.

How about adding this to your slave labor crusade Andrew!

 

[fiftyeight]

There is probably a lot more to it than the headlines

http://www.fmgl.com.au/UserDir/News...ue transparent tax structure explained278.pdf

But at least Twiggy is not dodging tax like RIO and BHP.

 

[Miner]

This is called - lashing out with a red herring. The idea is to make people who may be interested in going long think that the short sellers are foolish because Andrew is not leveraged. All the short sellers know that Andrew is not leveraged, as you do Andrew.
We also know, as you do, that it's FMG that is leveraged.
We also know that if there has to be a capital raising you will struggle not to be liquidated to some extent because you most likely will not be able to afford your quota and maintain your % of the company.
This guy is very sly.

He makes sure he slips in a boast about being a million dollar donor and bastion for slave laborers, whilst has been singing the praises of the Chinese for decades. The Chinese are the most brutal slave labor dictators ever seen, not just because of how brutal they are to the workers but because of the scale.
This garbage about the emerging middle class is all on the back of the Chinese Communist dictatorships huge slave labor force.
You have something like 350 million so called emerging middle class raised out of poverty on the back of a billion slaves! It's on a scale the world has never seen before.

View attachment 62214

These pictures are from a brick works factory where many workers are just plucked off the streets or farms and forced to work. They are guarded by dogs and beaten to death in front of the other workers if they don't work hard enough.
Not unlike the iron factories and all the other factories, you know the ones with nets outside the windows so the workers can't commit suicide.

How about adding this to your slave labor crusade Andrew!

First of all great posting.
Secondly, Andrew has not paid me to write this posting.
But I believe such a lashing on Andrew woas very unfair . He is the only AUSTRALIAN who helped millions of Australians to make money on FMG. He was a loner to fight against big guys like Rio and BHPB. It is also those two big guys (by the way I have worked for all three companies - BHPB , FMG and Rio - so know the game more closely than many sideliners). Of course Andrew and so were many Ausssie business houses including Fed and State Governments have sung for Chinese. We all knew Chinese labour agony. But the same we do in African countries as expats? Why not refer to Gina who told that Chinese labours were $2 per hour than Aussie labours ?
It is the market which driving all crazy. By lashing against Andrew alone there will be no gain. At least he is fighting to save many faces including his own. At least he has not sold off his shares when there was hay day. At least he is the only one who does not sit on a cubicle ? At least he is the only one who has literally tried to uplift original Australians . Just visit Pilbara sites and you know what Andrew has done. It is all political and pressure from Rio and BHPB who would strive to see Andrew fails. Yes, FMG is under tremendous financial crisis. But once again, please please do not crucify Andrew alone. Thanks for saving the lone Australian Hero.

 

[stit]

Would love to get some opinion on this article. It seems to be very well researched and is one of the few articles i've found that actually break down the situation with real numbers. Would love to hear some opinions around how accurate people think these numbers are and why or why not he might be on the right track. I personally can't grasp how the price of iron ore has fallen so sharply on the back of a "glut" when ore inventory stockpiles has not increased. Why have these stockpiles not started to increase towards the 30 - 50 million tonne mark as the suggested surplus for this year? Why are port inventories actually declining? Is the price really being influenced by sentiment as the article suggests? Would love to hear your thoughts

http://seekingalpha.com/article/3058186-fortescue-a-strong-pop-more-pain-and-then-victory

 

[Miner]

There is probably a lot more to it than the headlines

http://www.fmgl.com.au/UserDir/News...ue transparent tax structure explained278.pdf

But at least Twiggy is not dodging tax like RIO and BHP.

Dear Fiftyeight

Well said. If I may add to what you said, Twiggy is living in Australia and got his office in Australia without any high flying office in London like Rio (yes international company earning more than 50% wealth from Australia). Twiggy personally runs lots of charitable initiative (thanks Mrs Twiggy) and takes $1 salary (if it is still the case) . Any lead by example from BHPB , Fairfax, Rio or Kerry Stokes/Ryan Stokes (Seven Media ) ? Funny enough we never point out Rupert Murdoch our great Aussie Hero lives in USA almost permanently while managing Australian media.

 

[Value Collector]

Would love to get some opinion on this article. It seems to be very well researched and is one of the few articles i've found that actually break down the situation with real numbers.

http://seekingalpha.com/article/3058186-fortescue-a-strong-pop-more-pain-and-then-victory

I pretty much agree with the article, FMG is a decent part of my portfolio for the reason he outlined, I said earlier in this thread that I am not banking on a short term uptick in FMG, and that it is a 2-3 year play for me, I believe in 3 years we will be looking back and FMG will be a source of very nice returns in my portfolio.

His comments about fortescues Infrastructure position compared to debt are spot on, FMG is nothing like the mining juniors with their tiny mines and trucking operations, The assets FMG has are highly valuable, and they provide a backstop for FMG should they need cash, plenty of chinese steel mills would be interested in Buying FMG's port and rail infrastructure, Discovered resources and tenements, not to mention power plants and other related infrastructure.

One thing I feel he didn't focus on enough was the ability for FMG to continue reducing costs over time, costs will steadily be reduced and the difference between FMG and RIO/BHP's production costs will narrow. FMG are coming out of boom period where costs blew out as labour and contracting services were in short supply, but over the past year as FMG has settled into running at full capacity they have found many areas where costs can be reduced, this will continue and as service contracts come up for renewal prices will continue to trend down. Infact today FMG made an announcement about changing rosters to a lower cost model, this sort of thing will continue

 

[banco]

His comments about fortescues Infrastructure position compared to debt are spot on, FMG is nothing like the mining juniors with their tiny mines and trucking operations, The assets FMG has are highly valuable, and they provide a backstop for FMG should they need cash, plenty of chinese steel mills would be interested in Buying FMG's port and rail infrastructure, Discovered resources and tenements, not to mention power plants and other related infrastructure.

I can't imagine the Government approving the sale of port and rail infrastructure to the CHinese.