FMG - Fortescue Ltd

[galumay]

A person with FIFO work does not get annual leave

Yes they do, every worker gets annual leave.

 

[galumay]

I had no idea that mine workers do 8 days on, 6 days off. That's like 42.86% of days off. Compared that to a standard office worker who does 5 days on, 2 days off... which is only 28.57% of days off.

Its more meaningful to look at average weekly hours, the better sites have even time rosters, so the last place I worked at the FIFO's were on 8 days on, 8 days off. This works out to be an average of 42 hours per week.

8 days on 6 days off works out to 48hrs a week on average.

2 week on, 1 week off works out to 56hrs a week on average.

% of days off doesnt work as a comparison because of the difference in the length of the work days.

 

[Value Collector]

FMG right now has a market value of $5,5 Billion.
Has debts between 8 and 9 Billion, is losing money at the current price of IO.
Will need to pay interest on that 8 to 9 Billion.
That's around a 3 to 4 Billion dollar negative.
I guess you could call these Billions of dollars of losses in it's current predicament and counting!

Ok, there is a few things wrong with your logic here,

Firstly, FMG might be marginally losing money at the current price, however this is based on the production cost listed in the last operating results, these production costs have been steadily reducing, so in the next report we will probably find the production costs have further reduced. Also, this marginal loss is after interest on the loans have been paid, so bond holders are not losing yet, and a third thing you have to realise is that this production cost includes depreciation and amortisation, which includes some non cash costs, for example they are writing off their equipment at a higher dollar value each month than what they actually have to spend to maintain it, and the amortisation expense can actually go to pay the debt which was used to buy the asset that is being amortised.

You also don't seem to have any idea of how to calculate enterprise value, you don't simply subtract debt from market cap to work out the value of a company, you add the market cap and the debt together, to get an enterprise value. And if you want to work out the safety of the debt holders position you compare the debt to the value of the total assets of the company, and compare interest costs to cashflow.

Eg, the enterprise value of FMG = the total amount of capital contributed by debt holders + market cap

For example if I started a real estate firm, by buying a $500k house, I might get $400k from bond holders and $100k from investors. When the stock lists on the market, it might have a Market cap of $100k, the fact that the market cap is less than the bonds doesn't mean the bond holders have lost, because the bonds are worth less than the total assets which is the $500k house.

In fact one way to look at it is that the market cap, is the value the market has put on the equity held in the company, and that equity is the bond holders buffer, that protects their position, just like a deposit on a home loan, banks want you to put up a deposit, so that their loan is protected by a buffer of equity.

 

[notting]

so bond holders are not losing yet, and a third thing you have to realise is that this production cost includes depreciation and amortisation, which includes some non cash costs, for example they are writing off their equipment at a higher dollar value each month than what they actually have to spend to maintain it, and the amortisation expense can actually go to pay the debt which was used to buy the asset that is being amortised.
And if you want to work out the safety of the debt holders position you compare the debt to the value of the total assets of the company, and compare interest costs to cashflow.

Eg, the enterprise value of FMG = the total amount of capital contributed by debt holders + market cap

For example if I started a real estate firm, by buying a $500k house, I might get $400k from bond holders and $100k from investors. When the stock lists on the market, it might have a Market cap of $100k, the fact that the market cap is less than the bonds doesn't mean the bond holders have lost, because the bonds are worth less than the total assets which is the $500k house.

No Bond holders are not losing YET!
Enterprise value is fanciful and the assets are not worth anything if they are loss making and stuck in the middle of nowhere.
Comparing FMGs so called assets to a house in which you can actually live is untenable.
Writing off excessively your depreciation is probably better done in the good times for tax reduction, not in the bad times!

yesterdays closing price action on BCI and FMG was very strong with a slight continuation of the IO price rise last night, indicates to me that the Chinese mills may be starting to restock. Lets see how far it goes.

Not much of a rally yet however -

 

[Miner]

Yes they do, every worker gets annual leave.

Great news.
I have worked FIFO from Telfer to Perth, Pilbara to Perth, Vancouver to Perth, Peru to Perth and now doing Madagasar to Perth.
The annual leaves are always factored with Fly Out section.
I would be thankful to know which company in world offers annual leave for FIFO workers and could you forward my resume to them ?
It is a serious question and love to hear .

 

[pilots]

Great news.
I have worked FIFO from Telfer to Perth, Pilbara to Perth, Vancouver to Perth, Peru to Perth and now doing Madagasar to Perth.
The annual leaves are always factored with Fly Out section.
I would be thankful to know which company in world offers annual leave for FIFO workers and could you forward my resume to them ?
It is a serious question and love to hear .

I worked all my life FIFO, one job we was on it was 91 days on and 91 off, this was to avoid Australian tax, I never once got annual leave.

 

[galumay]

.
I would be thankful to know which company in world offers annual leave for FIFO workers and could you forward my

BHP, RIO & FMG to start with. I thought you said you had worked for all of them.

Its part of the National Employment Standards, its an entitlement enshrined in law

"Who is entitled to annual leave?

All employees (except for casual employees) get paid annual leave."

http://www.fairwork.gov.au/leave/annual-leave

 

[Value Collector]

No Bond holders are not losing YET!
Enterprise value is fanciful and the assets are not worth anything if they are loss making and stuck in the middle of nowhere.

So you agree, Billions have not been lost due to Andrew forests formation of Fortescue, and the net affect on the market, employees, government revenue, and the supply of material to a market that needed it has been positive to the affect of many Billions of dollars.

Enterprise value is not fanciful, it's a measure of the value of a company, it's a much more accurate measure of the value of an organisation than simply referring to a companies market cap as you did, which is just a measure of the current market value of the equity. Bond holders are stakeholders in the company just like equity holders, bonds and debt securities are just another part of the capital structure.

Comparing FMGs so called assets to a house in which you can actually live is untenable.

The share holders of a real estate firm can not just "Move into" their real estate.

Writing off excessively your depreciation is probably better done in the good times for tax reduction, not in the bad times!

It's not about writing off excessively, My point is that some of the things they are writing off do not require cash to replace them at all, and some have will have residual value long after they have been written off.

 

[notting]

I say that billions have been lost in terms of value with respect to speculation on FMG.
Those who invest perhaps underestimate the risks due to claims by people like Andrew about how the Chinese know what they are doing and it's going to go on for decades!. He should know, he's in with them and considered an industry guru according to those who believe/d him!

I'm highlighting the risks of the reality of the current position vs enterprise fantasies entirely based on hope for future IO price rises at the end of the biggest mining boom ever.
There may never be another mining boom like what we have just seen and the end is likely to run for far longer than expected. Not good for an oversupplied market still geared for that boom, and worst for higher cost over leveraged enterprises!!

I'm not blaming Andrew for anything other than running a massively risky enterprise at other peoples risks, having questionable motives with respect to his charitable dealings as he praises the worlds worst monsters - the Chinese - whilst holding a halo above his own head claiming to be a champion of the opposite of what the Chinese do.

The Chinese were still stimulating the fake housing boom during the GFC, when FMG was arguably insolvent. So there was some enterprise hope at that point but not from the realistic. The Chinese have exhausted that kind of stimulus and let it run for way, way too long. So there really is little to raise FMG off it's knees.

 

[Value Collector]

I say that billions have been lost in terms of value with respect to speculation on FMG.

FMG has steadily built value since it listed, as I have described the market has had a net increase in value due to FMG.

If everyday I bought $1000,000 of shares from you and sold them back to you at $2000,000 the next day, then your losing $1000,000 every two days, But I am making $1000,000 every to days, the two transaction offset each other, you can't complain that the complain that the company we are trading has lost you millions. your trading has lost you millions.

The company is probably building value everyday regardless of the trading losses you make, it's up to you to have a strategy that lets you profit from the value building inside the company you trade.

I'm highlighting the risks of the reality of the current position vs enterprise fantasies entirely based on hope for future IO price rises at the end of the biggest mining boom ever.

your negative sentiment is based on pessimism of future iron prices, you don't know what the price will be in 2 years.

If Iron ore stays at current levels, a lot of supply will leave the market before FMG is squeezed, and tonnes leaving the market will have a positive effect price support. If FMG shut down today, the price of Iron ore would sky rocket, So their assets have value and are needed by the market, that creates a back stop for bond holders and equity holders.

There may never be another mining boom like what we have just seen and the end is likely to run for far longer than expected. Not good for an oversupplied market still geared for that boom, and worst for higher cost over leveraged enterprises!!

we don't need a another mining construction boom, we just need the price to settle at a little higher rate than where FMG's production prices settle, Both production costs and price have fallen dramatically, Fmg has the scale to continue lowering costs, and I believe will eventually get a healthy margin.

when FMG was arguably insolvent.

FMG has never been insolvent.

 

[notting]

FMG has steadily built value since it listed, as I have described the market has had a net increase in value due to FMG.

I don't consider market increased balanced off by debt as value appreciative. It's currently 3 Billion or so in negative value relative to debt.

It's utterly dependent on IO price which is looking sick.

If Iron ore stays at current levels, a lot of supply will leave the market before FMG is squeezed, and tonnes leaving the market will have a positive effect price support. If FMG shut down today, the price of Iron ore would sky rocket, So their assets have value and are needed by the market, that creates a back stop for bond holders and equity holders.

RIO, Vale and BHP could fill any hole left by the demise of FMG without any increase in commodity price and probably will. Vale is undergoing a massive expansion then there is Glencore and Roy Hill. These are the realistic fundamentals and no drunken rants at Chinese lunches will make them curb for Andrew's sake.

Leaving Andrew's 'moral' pontificating aside - it comes down to IO price and there is over capacity and oversupply even if the mining boom was still on! There is nothing on the 5 year horizon that can soak up all the overcapacity of higher grade IO to lift prices.

 

[Value Collector]

I don't consider market increased balanced off by debt as value appreciative. It's currently 3 Billion or so in negative value relative to debt.

.

Every dollar that FMG has taken from equity holders and bondholders (together them make up the capital of FMG), has been used to develop assets that are worth more than the cash used to purchase them, these assets have also be run profitably for a few years and produced cash flow that has been used to pay interest and some principle to the bond holders, and pay dividends to the equity holders over and above the original capital they injected into the enterprise.

So yes the company has been steadily building value.

RIO, Vale and BHP could fill any hole left by the demise of FMG without any increase in commodity price and probably will. Vale is undergoing a massive expansion then there is Glencore and Roy Hill. These are the realistic fundamentals and no drunken rants at Chinese lunches will make them curb for Andrews sake.

No, if you took away fmg's production in the last 12months, the stock piles of Iron ore and finished product would be gone, and the price of Iron ore would be over $180/ tonne.

But before fmg turns off production, many other will

 

[notting]

But before fmg turns off production, many other will

Both RIO and Vale where publicly voicing that China would stop unprofitable mining of IO and that would take out enough to keep things afloat.
The glorious manipulating cheating Chinese responded with subsidies violating trade agreements as usual. Last hopes, dashed.
The 'many' small fry are irrelevant as previously stated.
Who of significance will fold before FMG, exactly?

 

[Value Collector]

Both RIO and Vale where publicly voicing that China would stop unprofitable mining IO and that would take out enough to keep things afloat.

Lots of Chinese mines have shut, and of the 200 Million tonnes they produce, more will shut, some state run mines will stay, but not all.

The 'many' small fry are irrelevant as previously stated.
Who of significance will fold before FMG, exactly

The small miners are not irrelevant, as a group they make up a lot of production.

There are plenty of mines struggling at this stage, Atlas is just one example.

But look I have said my piece, we just need to wait and see now. In the mean time I think you do need to brush up on your basic understanding of business and how the capital structures work, and how companies generate value for security holders, Here is a great video I suggest you watch.

 

[notting]

Thanks Value Collector for the discussion.
I like Bill Ackman, reminds me of someone.

 

[stit]

Yeah, I think market sentiment definitely has an effect, I can't see anything glaringly wrong with his figures, it fits in with other figures I have seen in other company reports and some news releases.

As he pointed out port stocks have gone down, but also I have see other reports that show Mills are holding less stock at the mills as they have run down stocks as the prices have fallen, this can only go on so long, if the price creeps up as seasonal demand comes on, there may be a rush to restock.

But saying that, Its very important to point out this is a 2 - 3 year play.

eah I have seen the reports that mills have been reducing their inventory - I think these reports date back to around November last year. However if this is the case where is the surplus iron ore??? The level of inventory at port has remained relatively unchanged at approx 100 million tonnes since 2013. Lets assume that the mills have reduced inventory by a nominal figure of 5% per month - does this not suggest that port inventories increase by an avg of 5 million a month?. A five million tonne increase per month would also be in line with analysts predictions of a 50 million tonne surplus this year. So without compounding, by the end of april, port stocks should be touching 120m tonnes right?? Why have port stocks actually been decreasing??? Are these analysts banking on the christmas fairy delivering 50 million tonnes in December - because i can't see where its materialising at the moment.

These same analysts would also have us believe that by 2018 we will have an oversupply of 200 million tonnes, but iron ore will still be commanding $40 per tonne???? How can this possibly be a reality when ore is only commanding $50 per tonne with an assumed surplus of maybe 20 million tonnes - which isn't even apparent currently based on port inventory stocks. Common sense based on current market dynamics would dictate that if the industry ever ended up with a surplus of 200 million tonnes that ores currency would be zero - it would be worthless. Its like they pluck these numbers out of there @ss.
,
I guess what my query is in all that ramble, is there any real hard evidence, by any of these genius analysts or other, to support that there is currently a surplus in stock? They just seem to be fools that have re adjusted there outlooks down every month with no hard evidence to back it up. I fail to understand how prices have more than halved since 2013 without any change held in port inventories since that point. If not, can market sentiment really be that influential, because the current collapse in price can't be backed up with data?? Would love to hear your input

 

[stit]

Thanks Value:

eah I have seen the reports that mills have been reducing their inventory - I think these reports date back to around November last year. However if this is the case where is the surplus iron ore??? The level of inventory at port has remained relatively unchanged at approx 100 million tonnes since 2013. Lets assume that the mills have reduced inventory by a nominal figure of 5% per month - does this not suggest that port inventories increase by an avg of 5 million a month?. A five million tonne increase per month would also be in line with analysts predictions of a 50 million tonne surplus this year. So without compounding, by the end of april, port stocks should be touching 120m tonnes right?? Why have port stocks actually been decreasing??? Are these analysts banking on the christmas fairy delivering 50 million tonnes in December - because i can't see where its materialising at the moment.

These same analysts would also have us believe that by 2018 we will have an oversupply of 200 million tonnes, but iron ore will still be commanding $40 per tonne???? How can this possibly be a reality when ore is only commanding $50 per tonne with an assumed surplus of maybe 20 million tonnes - which isn't even apparent currently based on port inventory stocks. Common sense based on current market dynamics would dictate that if the industry ever ended up with a surplus of 200 million tonnes that ores currency would be zero - it would be worthless. Its like they pluck these numbers out of there @ss.
,
I guess what my query is in all that ramble, is there any real hard evidence, by any of these genius analysts or other, to support that there is currently a surplus in stock? They just seem to be fools that have re adjusted there outlooks down every month with no hard evidence to back it up. I fail to understand how prices have more than halved since 2013 without any change held in port inventories since that point. If not, can market sentiment really be that influential, because the current collapse in price can't be backed up with data?? Would love to hear your input

 

[stit]

sorry re the double post!!!

 

[Value Collector]

eah I have seen the reports that mills have been reducing their inventory - I think these reports date back to around November last year. However if this is the case where is the surplus iron ore??? The level of inventory at port has remained relatively unchanged at approx 100 million tonnes since 2013. Lets assume that the mills have reduced inventory by a nominal figure of 5% per month - does this not suggest that port inventories increase by an avg of 5 million a month?. A five million tonne increase per month would also be in line with analysts predictions of a 50 million tonne surplus this year. So without compounding, by the end of april, port stocks should be touching 120m tonnes right?? Why have port stocks actually been decreasing??? Are these analysts banking on the christmas fairy delivering 50 million tonnes in December - because i can't see where its materialising at the moment.

These same analysts would also have us believe that by 2018 we will have an oversupply of 200 million tonnes, but iron ore will still be commanding $40 per tonne???? How can this possibly be a reality when ore is only commanding $50 per tonne with an assumed surplus of maybe 20 million tonnes - which isn't even apparent currently based on port inventory stocks. Common sense based on current market dynamics would dictate that if the industry ever ended up with a surplus of 200 million tonnes that ores currency would be zero - it would be worthless. Its like they pluck these numbers out of there @ss.
,
I guess what my query is in all that ramble, is there any real hard evidence, by any of these genius analysts or other, to support that there is currently a surplus in stock? They just seem to be fools that have re adjusted there outlooks down every month with no hard evidence to back it up. I fail to understand how prices have more than halved since 2013 without any change held in port inventories since that point. If not, can market sentiment really be that influential, because the current collapse in price can't be backed up with data?? Would love to hear your input

The level at the ports has declined by about 25million tonnes in the past year, at one point it was a little over 120million tonnes, it's now at around 96million, and some reports are saying that stocks at mills have declined, some mills are holding only a few days supply.

To me this suggests, Some of the recent price fall is caused by traders exiting position of physical ore, So the traders reducing their port holdings has been effectively adding a short term supply, also due to weakness, mills have been running down stocks thinking they can rebuy later at a cheaper price, so some of the price decline is due to a burning off of inventory.

The only reason I can think that port inventories have not risen, and actually gone down, is that the extra australian and Brazilian supply is being offset by chinese supply reductions, chinese finished product exports or increased local chinese usage. Some chinese mines have definitely closed.

 

[Miner]

I worked all my life FIFO, one job we was on it was 91 days on and 91 off, this was to avoid Australian tax, I never once got annual leave.

BHP, RIO & FMG to start with. I thought you said you had worked for all of them.

Its part of the National Employment Standards, its an entitlement enshrined in law

"Who is entitled to annual leave?

All employees (except for casual employees) get paid annual leave."

http://www.fairwork.gov.au/leave/annual-leave

Galumay
Please read what Pilots said.
I think you are perfect to take a role of Australian Treasurer Joe Hockey or WA Minister Mike Nathan (who denied the iron price would come down when it came at $100 per ton).
There are always some people who do not want to learn and I can see one here. Good luck. Do not want to waste my energy here. Good luck.