FMG - Fortescue Ltd

[galumay]

Galumay
Please read what Pilots said.

I did, I was replying to him too. (one possibility that comes to mind is that all his work was off shore and not subject to australian law given his tax comment.)

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).

Sorry, but I have no idea what you are talking about. You claimed to have worked for RIO, BHP & FMG, all of their FIFO workers get annual leave, as does every FIFO worker in Australia, because its the law - the law that I linked to.

I have worked in this industry for 35 years and never seen or heard of a case of a company here not providing what is one of the core conditions of employment in Australia.

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.

Oh the irony! And good luck to you too!

 

[qldfrog]

I did, I was replying to him too. (one possibility that comes to mind is that all his work was off shore and not subject to australian law given his tax comment.)



Sorry, but I have no idea what you are talking about. You claimed to have worked for RIO, BHP & FMG, all of their FIFO workers get annual leave, as does every FIFO worker in Australia, because its the law - the law that I linked to.

I have worked in this industry for 35 years and never seen or heard of a case of a company here not providing what is one of the core conditions of employment in Australia.



Oh the irony! And good luck to you too!

I worked for BHP and Vale, and always as contractor.
The high $ received was indeed paid against a no paid leave context;
I assume most FIFO are contractors as well;
It is a choice;
When FIFO O/S for Vale, as I have a white collar job (8h/d 5dper week) I did not receive any day on/day off, just working 3 weeks overseas and one week here; time for travel was not paid, and I was taking a day off (unpaid) when back in Oz;
a lot of FIFO are on similar deal; the high $ is deserved..believe me.
As a proof, I do not know of many people who can carry FIFO for too long.Even with VERY good money

 

[stit]

[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.]


To my understanding the 100m at port is roughly 70% presold and the remainder is effectively auctioned off creating the "spot price". If I'm understanding you correctly given port stocks are actually declining, steel output has remained flat and overall monthly imports have remained steady at 80 million that there is quite possibly a deficit in supply and not a surplus. Also mills are trying to manipulate the price in combination with pessimistic sentiment to drive the price down. Its interesting to me how everything that analysts seem to say is negative - surely its not to difficult for them to see these numbers for themselves? Instead when the chinese government cuts tax by a measly few bucks ( which would be the minimum expected token political gesture ), all you hear is them crowing about the demise of the whole industry. Like you say the only plausible explanation is that chinese mines have been closing - not that they're invincible due to mill and state support due to a political gesture. I think they have a lot to answer for with regards to the industry sentiment.

A lot has been said about roy hills 50 m this year - but to my understanding they're only planning to export a maximum of 5m this year and that 70% of what she produces will go directly to business partners, leaving the remaining 30% for sea bourn trade. 50 million is the mines maximum production - not what they're adding to the market this year - but again, this is what is reported in the media and by analysts.

It would seem inevitable that the stock has been oversold and will be interesting to see what the correction will be and when

 

[galumay]

I worked for BHP and Vale, and always as contractor.
The high $ received was indeed paid against a no paid leave context;

An independent contractor is not an employee.

I assume most FIFO are contractors as well;

No, nearly all employees on remote mine sites are FIFO, very few site based these days. All of them have to get annual leave.

Independent contractors are a small part of the workforce in % terms.

 

[Value Collector]

[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.]


To my understanding the 100m at port is roughly 70% presold and the remainder is effectively auctioned off creating the "spot price". If I'm understanding you correctly given port stocks are actually declining, steel output has remained flat and overall monthly imports have remained steady at 80 million that there is quite possibly a deficit in supply and not a surplus. Also mills are trying to manipulate the price in combination with pessimistic sentiment to drive the price down. Its interesting to me how everything that analysts seem to say is negative - surely its not to difficult for them to see these numbers for themselves? Instead when the chinese government cuts tax by a measly few bucks ( which would be the minimum expected token political gesture ), all you hear is them crowing about the demise of the whole industry. Like you say the only plausible explanation is that chinese mines have been closing - not that they're invincible due to mill and state support due to a political gesture. I think they have a lot to answer for with regards to the industry sentiment.

A lot has been said about roy hills 50 m this year - but to my understanding they're only planning to export a maximum of 5m this year and that 70% of what she produces will go directly to business partners, leaving the remaining 30% for sea bourn trade. 50 million is the mines maximum production - not what they're adding to the market this year - but again, this is what is reported in the media and by analysts.

It would seem inevitable that the stock has been oversold and will be interesting to see what the correction will be and when

Yes, Have you read the Fortescue quarterly production update that was released this morning. Production costs have dropped again, So any recovery in the Iron ore price is going to very good margins develop.

Also, FMG completed it's 5th ship berth in march, So growth capital spending is now complete, capital expenditure is now limited to sustaining capital, which they have also been able to reduce also.

 

[Bintang]

Yes, Have you read the Fortescue quarterly production update that was released this morning. Production costs have dropped again, So any recovery in the Iron ore price is going to very good margins develop.

Interestingly they provide a break even price guidance (with breakdown) for FY16 of US$39/dmt 62% Platts, which is based on a much further reduced C1 cost (US$18/wmt) than for Q3 (which was US$25.9/wmt)

It remains to be seen if they can actually achieve a C1 of US$18/wmt but even if they can I think the iron ore price needs to get back to at least US$55/dmt 62% Platts (annual average basis) to justify the current share price.

 

[notting]

Report is encouraging.
The figures are almost hard to believe with all in costs forecast to drop to US$39/dmt.
Lets hope IO stays above US$40dmt for FMGs sake.

250 loss making WMTs is still being pumped into the market according to Nev.
This is what RIO, BHP, Vale and FMG must all be a little puzzled by.
Perhaps China is looking to buy something!

The question a lot of people like Sam Walsh were openly asking was, ‘Why did Andrew make that speech in front of his Chinese customers, basically calling for a cartel.’

Answer: It was a sales pitch!

Between the lines - ‘Buy FMG and supply yourselves. If you want to insure against a cartel.”

Makes sense.

 

[Value Collector]

Interestingly they provide a break even price guidance (with breakdown) for FY16 of US$39/dmt 62% Platts, which is based on a much further reduced C1 cost (US$18/wmt) than for Q3 (which was US$25.9/wmt)

It remains to be seen if they can actually achieve a C1 of US$18/wmt but even if they can I think the iron ore price needs to get back to at least US$55/dmt 62% Platts (annual average basis) to justify the current share price.

If they can clear a $10 profit on each tonne, they are worth over $6 / share, at $10 profit per tonne, their current dividend policy of paying 30% of profits as dividend would have them paying a 10% fully franked yield on todays share price.

 

[Value Collector]

Report is encouraging.
The figures are almost hard to believe with all in costs forecast to drop to US$39/dmt.

It's not that hard to believe, production costs have been trending down for ages, that's what I was talking about over the last few days.

As a company brings it's projects online, and settles into production, it's natural that production costs decline, add to that the ballooned costs projects faced during the construction boom, it makes complete sense that as the construction boom fades, and there is less competition for labour and the many other services, costs reduce.

FMG's projects are large scale projects, there is no reason why they can't eventually get their operating cash costs down near BHP and RIO, Paper costs will look higher for some time, because a lot of Rio and BHP's infrastructure is older so depreciation expenses are less, but when it comes to running costs and sustaining capital, the gap will be narrowed, it's inevitable.

And when prices stabilise, the low cost FMG will be making a healthy margin.

Small guys like Atlas are a different story, they have far less productivity levers to pull, and the projects don't have scale, it's companies like them that are the ones who will switch off, not FMG.

It all comes back to scale and infrastructure, FMG has it.

 

[Value Collector]

Here is a reminder of FMG's scale, compare it to the small guys like Atlas, and the many other small miners around the world and you will find there is no comparison, and the flexibility of supplying any steel mill near a port. I wouldn't be surprised if many steel mills around the world mothballed local high cost Ore production and came to the sea borne market

 

[Bintang]

If they can clear a $10 profit on each tonne, they are worth over $6 / share, at $10 profit per tonne, their current dividend policy of paying 30% of profits as dividend would have them paying a 10% fully franked yield on todays share price.

If I understand you correctly this implies they can achieve and maintain net profit after tax of close to US$1500 million. They might get that if iron ore prices average US$65/dmt (Platts 62) and oil prices stay at $50/bbl. Even then a dividend payout of A$0.19/share hardly justifies a share price over $6.00. An investor would be better off buying TLS for $6.25 and getting a dividend of $0.30/share.

Goldman Sachs have just issued a “sell” recommendation on FMG with a target price of 50cents, which I am forced to agree with if their iron ore price scenario is accurate.

Goldman Sachs slaps 'sell' on Fortescue

 

[Value Collector]

If I understand you correctly this implies they can achieve and maintain net profit after tax of close to US$1500 million. They might get that if iron ore prices average US$65/dmt (Platts 62) and oil prices stay at $50/bbl. Even then a dividend payout of A$0.19/share hardly justifies a share price over $6.00. An investor would be better off buying TLS for $6.25 and getting a dividend of $0.30/share.

Goldman Sachs have just issued a “sell” recommendation on FMG with a target price of 50cents, which I am forced to agree with if their iron ore price scenario is accurate.

Goldman Sachs slaps 'sell' on Fortescue

A $0.19 cent dividend on today's price a 10% franked yield, that's better than Telstra, and FMG return on equity would be better.

It's strange you mention Telstra, because if you look at the Telstra thread, most people were saying telstra was a bad investment at $3, when it was paying nearly a 10% dividend. Suddenly it sky rockets, making halving the yield and every thinks it's a great investment?????

I think it's th old trap, stock falls bad bad,... Stock goes up good good,

People that bought Telstra at $3 will do a lot better than people that bought now

 

[stit]

Yes, Have you read the Fortescue quarterly production update that was released this morning. Production costs have dropped again, So any recovery in the Iron ore price is going to very good margins develop.

Also, FMG completed it's 5th ship berth in march, So growth capital spending is now complete, capital expenditure is now limited to sustaining capital, which they have also been able to reduce also.

Yes have seen the report which is good news. It underlines that fortescue continues to achieve what it says its going to do. It was only february that most "analysts" refused to believe that fortescue could have reduced their production costs down from $70 to roughly $50. I think when fortescue did, it was the trigger for most of these genius's to revise their "floor" price yet again. I've read that further savings of 50 - 60c per tonne are estimated in the re gig of the roster. Not sure what additional savings will be when they convert to gas from diesel with the completion of their gas pipeline, but would imagine this would be a substantial saving. Couple this with the automated trucks they're also looking to implement it doesn't seem too far fetched that they could reduce costs by another 5$ per tonne in the very near future. If they manage do to this it would seem they will lower than position on the cost curve to a point that they will be able to break even at the most current bearish forecast. Again - when you consider the estimates that 3 in every 4 tonnes of ore being produced at current prices is at a loss - i fail to see how the rout can continue as long as analysts would have us believe.

Read the goldman report - again I wish these analysts would back up their claims with hard facts. Again where is all this surplus ore??? They must have their own secret port in china somewhere. And again - how they think ore would still command $40 per tonne if there ever was 200 million surplus tonnes of the stuff is just fantasy land given we're currently already at $50.

Value - what do you know about vale? A lot of reports have their break even above $50 which seems excessively high given they're such a large scale producer. Is this just more "analyst" number plucking? If its correct, why is it so high? Is it additional freight and taxes debt expenses? If it is also really this high do "analysts" really believe that they will continue to strive for 400 million tonne output at a $10 per tonne loss? Seems a little unrealistic if thats the case?

 

[notting]

Vale have stated that when they crank up after their expansion they will be able to do it at 18 WMT. They are much bigger than FMG.
I suspect RIO and BHP are trying to trip them up before they can do that given the debt load of their expansion plans.
FMG is just kind of stuck in the middle of that dog fight.

 

[Bintang]

A $0.19 cent dividend on today's price a 10% franked yield, that's better than Telstra, and FMG return on equity would be better.

It's strange you mention Telstra, because if you look at the Telstra thread, most people were saying telstra was a bad investment at $3, when it was paying nearly a 10% dividend. Suddenly it sky rockets, making halving the yield and every thinks it's a great investment?????

People that bought Telstra at $3 will do a lot better than people that bought now

TLS was unusual because the share price got beaten down by the Future Fund dumping shares while people also claimed TLS was bleeding cash and could not continue paying their 28 cent dividend. But total revenue and profit were maintained, the dividends kept coming and the doubters were proved wrong.

However, for FMG their after tax net profit has plummeted. It was US$2740 million in 2014 FY and will probably come in around US$550 in 2015 FY. After that if the reference iron ore price remains at US$50/dmt they will struggle to achieve NPAT greater than $450 million even if they can get C1 costs down to $18/wmt.

 

[notting]

TLS was unusual because the share price got beaten down by the Future Fund dumping shares while people also claimed TLS was bleeding cash and could not continue paying their 28 cent dividend. But total revenue and profit were maintained, the dividends kept coming and the doubters were proved wrong.

I was saying TLS was a buy at the time. It was a good call on account of the hunt for yeild that prevailed afterword, it was a lucky call when Rudd decided to buy up the copper lines for the NBN!! Very lucky. Nobody could see that idiot coming.

I have had a 60c number that just kept jumping into my head on FMG since about September 2014. I always feel good when Goldman starts to agree about a year later.
Although they are going for 50c!

 

[Bintang]

I was saying TLS was a buy at the time. It was a good call on account of the hunt for yeild that prevailed afterword, it was a lucky call when Rudd decided to buy up the copper lines for the NBN!! Very lucky. Nobody could see that idiot coming.

I have had a 60c number that just kept jumping into my head on FMG since about September 2014. I always feel good when Goldman starts to agree about a year later.
Although they are going for 50c!

I don't own FMG and never have but I will get interested if the price drops below $0.70

 

[Miner]

I don't own FMG and never have but I will get interested if the price drops below $0.70

Great call. I will send you a bottle of scotch or bunch of flowers depending on if you are a He or She if the price even drops down $1. Would you send me just a token $5 if next 12 months FMG price rises about $2 ?
I do not hold FMG but believe on Andrew's leadership, have seen closely how he walks the talk and have some understanding of FMG ore body being involved directly with the expansion . My contractual obligation to deal with FMG will be soon over and hopefully will acquire some FMG as my pocket allows at that time. No price speculation here.
Yes Yes, I burnt on AGO not because of any thing but poor leadership there and scale of economy with the synergy of my stupidity and blindness.
Regarding some of the posters' reference to Goldman and other analysts. Those people are mostly suit and tie bean counters, use software and may not have adequate hands on knowledge even how a process for iron ore or any commodity works. How many times Goldman went wrong just like many of us ?

Besides what Goldman publishes in public could be opposite what they recommend their high profile clients purely by ramping. Why should they provide some free advise when they are obligated to create values for their captive clients.

One of the reputed brokers told me how they stack the market opinion . Remember a famous broker (Chris of Southern Cross Equities now owned by Bell) batted for FMG when Quinton (Bell) and other brokers were not even looking FMG of any value. I still remember Quinton (check the spell) of Bell Potter said in an open meeting 'I will not touch FMG ever" only to be seen Bell Recommended FMG as a buy within 3 years. If we go buy / sale what broker says in public that is a wonderful decision.
DYOR any way.

 

[Value Collector]

Great call. I will send you a bottle of scotch or bunch of flowers depending on if you are a He or She if the price even drops down $1. Would you send me just a token $5 if next 12 months FMG price rises about $2 ?
.

Lol, I would be happy to bet a bottle of scotch $1= I lose, $3 =I win.

 

[Bintang]

Great call. I will send you a bottle of scotch or bunch of flowers depending on if you are a He or She if the price even drops down $1. Would you send me just a token $5 if next 12 months FMG price rises about $2 ?

Lol, I would be happy to bet a bottle of scotch $1= I lose, $3 =I win.

Thanks for the offer but I was not making a call.
I was simply stating the price level at which I might become interested to buy.
The market has never agreed with my valuation of anything but sometimes it disagrees higher and sometimes it disagrees lower. I just try to pick what I think are the opportunities.