FMG - Fortescue Ltd

[Value Collector]

FMG is a sad side show and will continue to be with all it's debt.

Vale is the one going into debt to the Chinese here, and their 16billion plus investment is going to generate 90million tonnes capacity, FMG got to 165million tonnes on an investment of less than 14billion, and that was an all green field investment including port and rail.

Not to mention a chunk of that 14 has been cash flowed already.

 

[notting]

$10/tonne or 1.6b - 2b a year and in control of your own destiny.

Maybe not.

Call it profit in your dreams. The reality is that FMG are about $20/tonne short of being able to pay off the debt if price does not rise. Lenders, scrambling like never before for yield, in the lowest interest rate environment ever, aren't willing to give FMG less than 10%. Hardly a vote of confidence in Twiggies business plan.
Wonder what FMG will be offered next time they try to role over debt when interest rates are likely to be more normalized.

Lower grades, smaller margins and no way of influencing the price of oversupplied IO.

Not quite the the captain of their own destiny when you scratch a little further below the dirt on the surface.

 

[Value Collector]

Maybe not.

Call it profit in your dreams. The reality is that FMG are about $20/tonne short of being able to pay off the debt if price does not rise. Lenders, scrambling like never before for yield, in the lowest interest rate environment ever, aren't willing to give FMG less than 10%. Hardly a vote of confidence in Twiggies business plan.
Wonder what FMG will be offered next time they try to role over debt when interest rates are likely to be more normalized.

Lower grades, smaller margins and no way of influencing the price of oversupplied IO.

Not quite the the captain of their own destiny when you scratch a little further below the dirt on the surface.

Not that old chestnut again

At $10 profit per tonne FMG could clear most of their debt before it comes due, and like I have said before just refinance the remainder if they needed to.

and yes money that goes towards clearing principle on debt is profit, it's called building equity.

If you look at rio and bhp, they have no plans to clear their debt to zero, bonds are a permanent part of their capital structure, as it is with most large companies, especially ones with large property or infrastructure investments.

 

[notting]

Money that goes towards clearing principle on debt is profit, it's called building equity.

Yeah it's called profit. The trouble is that kind of 'profit' needs to be qualified.
When you have made more money than what has been put into the business I call that profit.
You ask a simple question - Did the business make money or lose money when you count the total of what it cost compared to what it made.

$10 profit per tonne FMG could clear most of their debt.

So why the 'could?' That sentence screams one thing to me. - 'FMG won't clear much, if any of their debt, even if they can squeeze a %10 margin out of their lower grade IO whilst higher grade IO is trading with a roof of $60 on it's head.

The premier echoed his earlier criticism of BHP and Rio in March when he accused them of "offending" the Chinese by charging them top dollar at the peak of the iron ore boom.

"The major producers here have offended the Chinese over the last few years and Chinese don't forget that," Mr Barnett said.

Well Australia was offended by everything the Chinese communist party stands for and all that it does. Like paying 10,000 of it's students, occupying this country to take buses to Canberra and attack Australians including old women and children on the lawns of parliament house, during the Olympic flag relay.
Not to mention hacking into the reserve bank of Australia, after calling openly to the world, literally the day before, to end state based hacking!
There is no level we could stoop to, to offend the lowest example of humanity the world has had to put up with since humans began.

 

[Value Collector]

Yeah it's called profit. The trouble is that kind of 'profit' needs to be qualified.
When you have made more money than what has been put into the business I call that profit.
You ask a simple question - Did the business make money or lose money when you count the total of what it cost compared to what it made

.

The equity holders have more equity capital today than the actual capital they injected at the start, about a third of the debt principle has been repaid with interest, and the remaining debt is earning interest and will be repaid over time.

If you don't count profit until the fix asset costs have been earned back 100%, you are going to get a pretty warped earnings profile, that doesn't match reality. Eg if you own a fixed asset worth $100k and 12 months later it's worth $95k but has thrown off $20 of cashflow, you have $15k profit, you don't treat it like you are still down $85k just because the fixed asset hasn't been total amortised yet.

Profits are the cash that the asset generated minus the amount of deprecation/ depletion the asset suffered. The capital value of the asset is still a real thing, so it forms part of the net worth, you don't ignore it and only count the cash flows.

FMG own a bunch of assets, some with very long productive lives ahead of them, So as they take their cashflow and repay the bond holders, they are building equity for shareholders, and increasing future cash flows by reducing interest payments.

So why the 'could?' That sentence screams one thing to me. - 'FMG won't clear much, if any of their debt, even if they can squeeze a %10 margin out of their lower grade IO whilst higher grade IO is trading with a roof of $60 on it's head

.

What is $10 x 165,000,000 tonnes x 4 years till debt is due? Seems like a lot of cash to me.

I say could, becuase they could pay it all in dividends, or they could make acquisitions etc, they probably won't though, they will reduce debt. But yes some companies hold their bonds permanently refinancing so they can keep growing, eg bhp and rio

 

[stit]

Maybe not.

Call it profit in your dreams. The reality is that FMG are about $20/tonne short of being able to pay off the debt if price does not rise. Lenders, scrambling like never before for yield, in the lowest interest rate environment ever, aren't willing to give FMG less than 10%. Hardly a vote of confidence in Twiggies business plan.
Wonder what FMG will be offered next time they try to role over debt when interest rates are likely to be more normalized.

Lower grades, smaller margins and no way of influencing the price of oversupplied IO.

Not quite the the captain of their own destiny when you scratch a little further below the dirt on the surface.

Im not surprised that they had to pay a premium on their interest given the current level of hysteria in the ore sector atm. They've secured funding at the height of uncertainty and paid a necessary higher price. At the end of the next five year term i would be very surprised if FMG gearing was not at the lower end of the scale compared to the other three......

Balance sheets of the four majors from 2014

FMG assets $22.69b.......liabilities $15.11b.........debt ratio 66%

Rio assets $107.82b.......liabilities $61.54b.........debt ratio 57%

Vale assets $116.49b.......liabilities $60.17b........debt ratio 52%

Bhp assets $151.41b.......liabilities $72.27b.........debt ratio 48%

Is the FMG debt ratio really that obscene compared to the majors? When people bang on about the debt laden FMG, do they hold the majors accountable to clear their debt in the given term without extension also? Is it that much of a stretch to imagine that fortescue will reduce debt by a further $1.278b in the very near future which would give the same debt ratio of rio which is considered sound? I'm not sold on the debt ridden logic.....................

 

[notting]

Im not surprised that they had to pay a premium on their interest given the current level of hysteria in the ore sector atm. They've secured funding at the height of uncertainty and paid a necessary higher price.

BHP the biggest IO minor on earth, secured more money for almost nothing virtually on the same day!!!!
If the difference between these models is negligible, why the chalk and cheese and why is Twiggy tearing his hair out?

- Money talks.

If Twiggy was sitting back with a smug grin on his face like Sam and co. I'd be a little more comfortable. Perhaps we could only argue, then, that banksters lose their ability to count when it comes to FMG. (unlikely)

I guess they can raise capital if they had too.
Twiggy on the other hand?
That's an argument for FMG at a diluted level.

Seeing the light yet?

 

[stit]

BHP the biggest IO minor on earth, secured more money for almost nothing virtually on the same day!!!!
If the difference between these models is negligible, why the chalk and cheese and why is Twiggy tearing his hair out?

- Money talks.

If Twiggy was sitting back with a smug grin on his face like Sam and co. I'd be a little more comfortable. Perhaps we could only argue, then, that banksters lose their ability to count when it comes to FMG. (unlikely)

Bhp is 7 times the size of FMG. Bhp is not a pure play iron ore miner. Bhp has long been established as a low cost producer that will never be squeezed out of the market. Of course they can secure money at a lower rate than fortescue. Your not comparing apples with apples and I'm not getting the gist of your point? You were talking about debt.....Are you suggesting that fortescue cannot obtain funding as cheap as BHP because the market sees them as a risk because of their debt levels? As per above their level of debt doesn't seem as obscene to me as people would make out. I tend to think that fortescue paid through the nose because they're still proving they can be profitable in a market that is currently very difficult. Until they manage to prove they can produce ore at the break even levels that they are forecasting, obtaining funding will attract a premium. It seems to me however that they are reducing their cost of production nearly every quarter at a rate that people find difficult to believe. This is to the point that they may even be undercutting - to this point - much larger competitors in vale, who as you say are starting to sell their soul to the devil to survive. The fact that they can obtain money at the height of the hysteria suggests to me that the market believes they can and will survive, but they will pay a premium. Yes your right, money talks........and $2.5b is a lot of money talking in secured funding when the market is in an unprecedented crisis.

 

[notting]

:fanWell you made the list of comparables.
blinkers.

I guess the banks would have been heartened by BHPs recent oil investments, like in Petrohawk when oil was at $100. Or maybe just the state of oil in general, at the time - 45 ish.
Copper? hmmm .
What else is there? Potash! 500million take over cost for :bad:

Well diversified indeed.

Psst, IO is their biggest earner.

 

[stit]

:fanWell you made the list of comparables.
blinkers.

I guess the banks would have been heartened by BHPs recent oil investments, like in Petrohawk when oil was at $100. Copper? hmmm . What else is there? Potash! 500million take over cost for :bad: Well diversified indeed.

I wasn't deliberating about the viability of BHP - its a mute point. You made the comment that FMG was debt laden. I made the point that based on its rivals balance sheets that maybe its not as bad as you make out. I was hoping you were going to educate me with something I didn't know. Instead you seemed to move on from debt to the rate that bhp and fmg can obtain funding at? I made the point that once fortescue establishes its profitability under the new regime of lower ore prices that funding would be cheaper for them. You moved back to BHP? Maybe your on the wrong forum??

 

[notting]

Well, their all capital intensive. BHP did it at close to 1% FMG 10%.
Even with BHPs awesome ability to do deals as shown above.
That's money talking, confidence vs lack of it from money experts. Just a point.

 

[Value Collector]

BHP the biggest IO minor on earth, secured more money for almost nothing virtually on the same day!!!!
If the difference between these models is negligible, why the chalk and cheese and why is Twiggy tearing his hair out?
?

Rio Mines more Iron ore than BHP.

And what do you mean the difference between BHP and FMG is negligible? BHP is more diversified, it's not 100% iron and has less debt, obviously the diversification and the lower debt is the reason for the cheaper financing, not to mention Fmg is still in the process of reducing costs, where as bhp and rio have already reduced costs due to the time they have been mining.


But as I said when it comes time to refinance next time, FMG will be on a much lower debt ratio, and will achieve beter financing, (if it needs it of course)

 

[Potator]

Yeah it's called profit. The trouble is that kind of 'profit' needs to be qualified.
When you have made more money than what has been put into the business I call that profit.
You ask a simple question - Did the business make money or lose money when you count the total of what it cost compared to what it made.



So why the 'could?' That sentence screams one thing to me. - 'FMG won't clear much, if any of their debt, even if they can squeeze a %10 margin out of their lower grade IO whilst higher grade IO is trading with a roof of $60 on it's head.



Well Australia was offended by everything the Chinese communist party stands for and all that it does. Like paying 10,000 of it's students, occupying this country to take buses to Canberra and attack Australians including old women and children on the lawns of parliament house, during the Olympic flag relay.
Not to mention hacking into the reserve bank of Australia, after calling openly to the world, literally the day before, to end state based hacking!
There is no level we could stoop to, to offend the lowest example of humanity the world has had to put up with since humans began.

This guy...

 

[notting]

Rio Mines more Iron ore than BHP.

And what do you mean the difference between BHP and FMG is negligible?

They mine stuff that is pretty cheap at the moment.

I was certainly not referring to their current debt v's equity situation or CAPEX investment status relative to 'ready to ship status.'

 

[Ves]

If, as some analysts claim, FMG was "high-grading" (ie. cherry-picking their highest quality ore to improve the output grade) to increase margins in the short-term, how would an investor be able tell?

 

[notting]

"several" applications had recently been lodged with the Foreign Investment Review Board that would affect mining companies. The applications "raise the possibility of significant upheaval in the iron ore industry and ownership of sections of it over the next 12 months"

I'd rather be long on this rumor for the moment.

 

[Potator]

I'd rather be long on this rumor for the moment.

But China evil, debt vs market cap, FMG 50c, Andrew.

Now that that's out of the way, even if FMG says it's not aware of anything the said rumour suggests someone with at least reasonable backing thinks there are "players" worth buying. If it's not FMG and assuming it's not one of the bigger companies it points to FMG being worth more again. I wonder how much Goldman owns!

 

[notting]

Not too impressed with the speculation in FR talking of Andrew selling a stake which is the last thing the company needs as part of the deal.
Along with the boasting about driverless trucks. What was that about employment Andrew?
If he offloaded a stake now, along with the employment plans recently instigated, it would hero to zero in a flash.
FMG needs cash.
Assets for cash is the only thing that makes sense.

 

[stit]

Value - would like to hear what you think about these developments........


At what point of investment do companies have to go through the FRIB? Is it over a certain percent of value of the company? What potential implications do you think this could have on the share price? Is the suggestion that these chinese entities looking at buying into the company via buying listed shares or via some other manner?

Would appreciate if you could shed a little more light on what you think about the matter

 

[stit]

It would seem to me that the chinese are playing rio and bhp at their own game. Bhp and Rio seem to have been treating the market with complete arrogance and contempt with the eat sh*t and die mentality of sink or swim by flooding the market with low cost product with a long term strategy of recouping profits when competition is crushed. It seems with the recent investments from the chinese in Vale and now the rumours surrounding fmg that they may be one step ahead of the primary two by ensuring that they have at least four permanent big producers in the market to ensure they never get screwed again............

Twiggy may yet have the last laugh..........