FMG - Fortescue Ltd

[Miner]

some followers of FMG https://au.news.yahoo.com/thewest/a/27171884/mining-wages-may-be-next-to-fall/some
What they should follow that CEOs to take a token salary having earned multi millions and deferred bonus.
If they can show the courage then would be able to cut down wages of miners as well.
It is too late realisation how our wages in mines were inflated by none but all those people BHPB Rio FMG and their contractors in 2011-12. You ask for people - imported from overseas in 14 days 457 visa. You do not want to change job they were paying $20000 bonus just for signing the offer, 15% retention bonus .
Now all of them are biting us .

 

[Miner]

xxxxxxG

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.

I did not visit Bell site until now to see they have actually recommended FMG as A SPECULATIVE buy when the price was $1.95 with a prediction to go up $2.48 against previous prediction $1.95. Ironically FMG has dived down to $1.85 today. I still value technically FMG is a good value at today's price . But I am disregarding BP's prediction with their covering up to call it a speculative recommendation. What is a joke because they (BP) have not done research enough. This reinforces my comment on this thread earlier that brokers' recommendation to be always taken with a pinch of salt. With Europe crashing on Friday, probably Monday will give the bargain hunters an opportunity.
Please see attached.

 

[stit]

Value - your $10 per tonne profit might be just around the corner...............

http://seekingalpha.com/article/307...er-than-expected-and-will-continue-to-improve

 

[stit]

Apparently "analysts" suggest chinese mines are not reducing output magnifying the glut...............

http://www.scmp.com/business/commod...h-iron-ore-output-falls-134-cent-imports-rise

Would be amusing if the price has actually bottomed at $46 after they've all just fallen over each other to out do each other on their latest forecasts

 

[Value Collector]

Value - your $10 per tonne profit might be just around the corner...............

http://seekingalpha.com/article/307...er-than-expected-and-will-continue-to-improve

When you showed me his original argument for Fortescue, I said he was missing the case for lower costs, atleast he gets it now

I don't know if we have bottomed yet, although I think we may have, but I am confident that where ever the price settles it will be where FMG make a good margin, and it may end up being a very good margin, every $ FMG can make per tonne, adds $0.75 to their value.

 

[stit]

When you showed me his original argument for Fortescue, I said he was missing the case for lower costs, atleast he gets it now

I don't know if we have bottomed yet, although I think we may have, but I am confident that where ever the price settles it will be where FMG make a good margin, and it may end up being a very good margin, every $ FMG can make per tonne, adds $0.75 to their value.

i actually think it may be a different author. Does the $.75 have a mathematical basis? If it does based on the latest report there share price should have an additional $2.10 in value given there costs are $3.00 lower than expected. With a further $7 in savings by 2016 that would put there share price value well over $10.00??

 

[Value Collector]

Does the $.75 have a mathematical basis? If it does based on the latest report there share price should have an additional $2.10 in value given there costs are $3.00 lower than expected. With a further $7 in savings by 2016 that would put there share price value well over $10.00??

Yes, each $1 of profit margin FMG are able to make multiplied by the number of tonnes they produce, adds X amount of net profit at the end of the year, dividing this net profit by the number of shares on issue, gives you the profit per share per $1 profit margin.

Once you know roughly have many cents per share are earned for every $1 profit margin you can work out how much you would be prepared to pay for the company based on different profit margins.

Based on my required return I would have to pay no more than 75cents per dollar of profit margin to make sure I am likely to get a satisfactory return, so the fair value for FMG is about 75cents for whatever it's average margin turns out being over the next few years.

If it turns out they can average a $10 margin, that's $7.50
If it turns out they can average a $20 margin, that's $15.00

who knows where it will be, But I think over time they will be earning atleast $10 on average, So the current price is super cheap, if they get $5 it's still cheap, but if they can get $15 to $20, FMG will be one of those big winners in my portfolio, I am happy to wait and see how it plays out over the next 2-3years, I suspect we will see substantial appreciation from it's current level, and dividends will be over 10% of todays share price.

Others will disagree, but only time will tell, pretty much every stock I have had earnings on in the 100's of %, have seen people all around me tell me I am wrong.

look at the capilano thread, I tried to layout the investment position, and was shouted down, the stock went from $2.25 to $11.50. I made 100's of thousands on that one.

https://www.aussiestockforums.com/forums/showthread.php?t=25082&highlight=czz

 

[Knobby22]

who knows where it will be, But I think over time they will be earning atleast $10 on average, So the current price is super cheap, if they get $5 it's still cheap, but if they can get $15 to $20, FMG will be one of those big winners in my portfolio, I am happy to wait and see how it plays out over the next 2-3years, I suspect we will see substantial appreciation from it's current level, and dividends will be over 10% of todays share price.

I suspect that you are right but in my experience these downturns always seem to last longer than expected. Also there is the loss of that capital for other shorter term trades while you are waiting.
I wouldn't be putting big money on such a trade...not yet anyway.

 

[Value Collector]

I suspect that you are right but in my experience these downturns always seem to last longer than expected. Also there is the loss of that capital for other shorter term trades while you are waiting.
I wouldn't be putting big money on such a trade...not yet anyway.

I don't tend to make short term trades, But as I said it's 2-3 year thing for me, I am happy to wait 3 years to triple my money.

I am happy with a 10% return over time, so locking my money away for 3years to achieve a compounded rate of greater than 50% is nothing. I am actually not expecting it to take 3 years, but I don't mind if it does.

 

[Knobby22]

I note the he company is on a long term down trend over 1 year and over 5 years with no sign it is changing direction. Good luck.

I am keeping my eye on it and will advise when I join you but it will be minimum 6 months away.

 

[notting]

Rio Tinto shares are 1.7 per cent higher despite revealing a surprise 12 per cent fall in iron ore exports over the March quarter at 74.7 million tonnes.

Andrew Forrest has locked himself in his office and has requested that no calls or disturbances of any kind should occur until he comes out with

A letter. ----- and he starts writing -

Dear Sam,

I love you, I love you, I love you.........

 

[stit]

I don't tend to make short term trades, But as I said it's 2-3 year thing for me, I am happy to wait 3 years to triple my money.

I am happy with a 10% return over time, so locking my money away for 3years to achieve a compounded rate of greater than 50% is nothing. I am actually not expecting it to take 3 years, but I don't mind if it does.

What do you think of this:

http://www.moneymorning.com.au/20150416/ignore-warren-buffett-and-speculate-on-resources.html


In the article it states a worse case scenario of china steel production at 800 million tonnes for the next ten years. I don't really understand how this is such a dire forecast. I could be mistaken, but understood that it takes about 1.6 tonnes of ore to produce 1 tonne of steel. This continues to put china's appetite for ore annually between 12 - 1300mt a year. The forecast total output for the 4 majors is 1075 for 2015???? Assuming that almost every other miner is at a loss i still fail to see how people are not forecasting a correction???
.
http://www.steelorbis.com/steel-new...trategies-amid-low-iron-ore-prices-877867.htm

The above link goes onto say how mills previously purchased stock 70% from majors 30% local. Now in order to preserve costs the almost exclusively purchase from the majors and the figure is more like a 90/10 split. How this won't go onto decimate the local market is beyond me......

http://www.steelorbis.com/steel-new...ecreases-slightly-at-chinese-ports-877795.htm

But still at a loss as to where the surplus ore is going since imports remain steady and inventories continue to slide!!!

 

[Value Collector]

But still at a loss as to where the surplus ore is going since imports remain steady and inventories continue to slide!!!

That's the big question isn't it. The Iron ore inventories are slowly drawing down, yet the nobody mentions that,all they want to talk about is a glut, but where is the ore.

Meanwhile BHP has deferred it's inner harbour debottlenecking plans, So their goal of 290MT has been pushed back.

 

[stit]

That's the big question isn't it. The Iron ore inventories are slowly drawing down, yet the nobody mentions that,all they want to talk about is a glut, but where is the ore.

Meanwhile BHP has deferred it's inner harbour debottlenecking plans, So their goal of 290MT has been pushed back.

http://www.heraldsun.com.au/busines...oars-on-bhp-talk/story-fnn9c0hb-1227316359708

Gotta love these headlines - like the world of iron ore revolves around assumptions, predictions and rumours rather than real current numbers.

Is it too early to call the bottom in.........................

 

[stit]

http://www.heraldsun.com.au/busines...oars-on-bhp-talk/story-fnn9c0hb-1227316359708

Gotta love these headlines - like the world of iron ore revolves around assumptions, predictions and rumours rather than real current numbers.

Is it too early to call the bottom in.........................

http://www.smh.com.au/business/mark...-up-on-revived-bond-deal-20150422-1mr8o7.html

Should see a nice jump in the price today...............

 

[Value Collector]

http://www.smh.com.au/business/mark...-up-on-revived-bond-deal-20150422-1mr8o7.html

Should see a nice jump in the price today...............

An interesting point to note, is that BHP and RIO, have now deferred Iron ore expansions in excess of the capacity that Roy Hill will bring to market, add to that the planned mothballing of many other smaller mines in china, Australia and around the world.

One other concept which I have no idea how to quantify, but which I am sure will have an effect, is a reduction is steel scrap rates. When the iron ore price is high, there is a large incentive for people to spend a lot on labour and transport costs to bring every piece of scrap metal available to market, however as the iron ore price reduces so does the price of scrap steel, meaning a certain percentage of the scrap steel that requires higher transport costs or labour processing will not be traded in, increasing the need for lower cost virgin material.

check out this video below, the speed at which scrap steel is brought to market from ship breakers such as this, and all the other scrappers around the world, depends on the scrap price, the lower the scrap price, the less workers willing to work, and the longer equipment owners will hold onto their ships/cars before selling them to processors.

 

[notting]

Sole lead JP Morgan launched a 9.75 per cent US$2.3bn senior secured seven-year non-call three bond at a discount of 97.608 to yield 10.25 per cent - just a touch inside talk of 10.5 per cent.

OK, that will put off any chance of covenant breach, but it's a shiity deal for FMG. The kind of deal you make when, 'you get an offer you can't refuse!'

Today's short squeeze already looks to be weakening.
But due to the 12.5% all in quite crowded short trade, that could hurt those running for the exits.
Although it's been hard to get longs to short against lately, those taking profits at the moment may be snapped up by those who couldn't short before due to lack of shorts on offer.

Let's see how it finishes off the day, will need to see continued improvement in IO price.

 

[Value Collector]

will need to see continued improvement in IO price.

No, it's about profit margin, not what the Iron ore price is.

the reason I mention margin, is because that's what's important, If people are only focusing on the iron ore price, they are missing half of the story.

 

[notting]

No, it's about profit margin, not what the Iron ore price is.

the reason I mention margin, is because that's what's important, If people are only focusing on the iron ore price, they are missing half of the story.

Given you are writing to someone who has been shorting since $6 whilst you have been staying long above that and the price is at $2.09 after a 15% jump in 3 days your remarkably plucky. The reality as far as investing in it is concerned is far from the story in which you have been believing. It should be added you are absurdly claiming someone else has missed half the story. No this investor has bought back his shorts over 3 days, ending 3 days ago, only to be a little long NOW. But wait there's more, the long is now 11% in the money.

Whilst I respect some of your analyses, you probably should stop trying to learn me by starting with fanciful no's and play school level Bill Ackman videos, which you seem to have failed to understand - "not too much debt."
Perhaps you should start again by taking your own curriculum.

BHP got a loan at about 1.2% for 15 years whilst FMG got one for about 11% to insure against what they must feel is a pending covenant breach. Why else would they take such a shocking deal in an environment when a competitor can do such unbelievably one!!

On the bright side for both of us now, having noted some unusual enthusiastic buying action on FMG and BCI, just before (noted at the time above) China announces it is now stimulating to the degree that it did during the GFC and analysts are saying they may do more and BHP and RIO have cut back a little on production, along with the overcrowded short positions in FMG and BCI. Any one short, with half a brain, would have taken profit over the last trading week very profitably and even gone a bit long just to keep feeling the temperature so to know when to go again if there is no follow through in all the above including the price of IO.

Sorry but that's the story and it doesn't look like I have missed a word of it in this particular one.

 

[Value Collector]

My point is, even if there was no further increase in the Iron price, and FMG just merely brought their cost down to where their guidance is, there would be more than enough margin to see FMG increase in value to 400%.

Also my cost on my FMG holding is closer to $3 than $6, and and a bunch of them were funded with premiums from put options I was writting over the last 3years.