Here's a view that appeared in Bloomberg earlier this year.
http://www.bloomberg.com/news/artic...eapfrogs-rio-bhp-as-cheapest-iron-ore-shipper
Index Mundi's data is that in 2007 iron ore was US$36.63 (Iron Ore Fines 62% FE spot CFR Tianjin port, US Dollars per Dry Metric Ton). What I am suggesting is that at that time, that was the marginal cost of production along the industry cost curve for whatever global volume of demand there was in 2007. What I am also suggesting is that the price of iron ore in any period you chose to look at is "normal".
The cost of freight for capesize vessels from Brazil to China has dropped below $10 a wet metric ton for the first time since January 2009, compared with about $5 a ton for Australia to China, Macquarie Group Ltd. analysts said in a Jan. 9 note. Vale can now ship a ton of iron ore to China cheaper than BHP “for the first time in many years” and is close to challenging Rio as the lowest cost supplier, Macquarie said
Non-cash impairments.If this is true - where has the 3.2b loss come from? Its not just a loss - its a sh*tload of money in anyones books
Index Mundi's data is that in 2007 iron ore was US$36.63 (Iron Ore Fines 62% FE spot CFR Tianjin port, US Dollars per Dry Metric Ton). What I am suggesting is that at that time, that was the marginal cost of production along the industry cost curve for whatever global volume of demand there was in 2007. What I am also suggesting is that the price of iron ore in any period you chose to look at is "normal".
Non-cash impairments.
FMG's presentation today had a few interesting charts, two cost curve charts one from the prior period had FMG sitting ever so slightly above Vale, however the forward looking chart put together by JP Morgan has FMG sitting below Vale on the cost curve.
there is also an interesting chart showing how FMG's costs have declined massively as they have been well and truly been narrowing the spread between themselves and Rio/BHP. Fmgs cost have dropped more than 50% since the 1st half of 2013, offsetting a large part of the declines in commodity price.
Also in a side note the Iron ore price seems to be continuing is upward trend, so margins are looking pretty good at the moment, things are looking pretty good to me.
The doomsdayers with the sky falling attitude just don't seem to make that adjustment and only focus on a glut based on current total global production, even though inventory stockpiles don't back up what they're saying.
Is that on the net? Is there a link? Would love to have a look.
I keep thinking old mate from seeking alpha may be on the money re his forecast. Yes it's obvious that demand may be peaking, but the current demand isnt going to disappear overnight. The current demand from china ( 70% of seaborne trade only ) is more than the increase forecast production of the big 4. I tend to think the worst is over as other players above 60 per tonne inevitably leave the market. Maybe this has already happened and left a deficit forcing up the price. The doomsdayers with the sky falling attitude just don't seem to make that adjustment and only focus on a glut based on current total global production, even though inventory stockpiles don't back up what they're saying. Could be very wrong but hope I'm right!!
The presentation is on CommSec and the asx website under FMG's asx announcements, I tried to link it a few times but my iPad keeps refreshing the page every time I try.
ok thanks for that will try and dig it up
Here it is, hopefully the link works now that I am on my computer.
http://www.asx.com.au/asxpdf/20150507/pdf/42ydz9c18cm2qs.pdf
Rumours in the Fairfax press that South 32 and FMG might merge.
That would solve a lot of problems (reduce debt risk for FMG, improve cash flow for South 32)but I don't think BHP would like it, it would be effectively a second BHP producing iron ore.
. In your opinion how long do you think this will take to unfold? 6 months? 12? I think you've said once before that you'd be looking for a share price around $5 with a $10 margin
$10 clear operating profit / tonne should mean they could be worth $7.50 / share. It can take the market a while to reflect this though.
I am prepared to wait 3 years, But don't think it will take that long.
it will probably happen progressively, as the market gets over the shock of the Iron ore price falls and becomes comfortable with FMG's profit margin and earning power. As certain milestones are hit eg, half and full year profit results that reflect the new lower production cost we should see surges in share price, or if there is a significant rise in the iron ore price to the point that it is obvious to everyone that FMG are making a great margin and they resume clearing debt the price should surge.
I think over $6 could be easily achieved by the end of the year, and my 2-3 year price target is over $10, potentially $15 is the next 2-3 years prove to be a margin of close to $20 and are able to clear a bunch of debt and pay some healthy dividends.
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