FMG - Fortescue Ltd

[Value Collector]

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

I haven't heard any firm details on what the deal is or how likely it is that it will go through, so It's all speculation at this point.

There are certain deals could be good and others that could be bad, If any deal does end up coming about, it would most likely be positive for the share price from it's current position, but dilute some of the future capital growth which as I have said potentially may end up being $15/ share over time.

My personal opinion is that Plan A should be that FMG just sits there and uses it's positive cash flow to improve it's balance sheet, this way over time full value generation will pass on to shareholders.

I think that is also Andrews Preference also, I have a feeling that these talks are part of a "Bullet proof plan B" as Andrew always says, and may amount to nothing.

 

[stit]

I haven't heard any firm details on what the deal is or how likely it is that it will go through, so It's all speculation at this point.

There are certain deals could be good and others that could be bad, If any deal does end up coming about, it would most likely be positive for the share price from it's current position, but dilute some of the future capital growth which as I have said potentially may end up being $15/ share over time.

My personal opinion is that Plan A should be that FMG just sits there and uses it's positive cash flow to improve it's balance sheet, this way over time full value generation will pass on to shareholders.

I think that is also Andrews Preference also, I have a feeling that these talks are part of a "Bullet proof plan B" as Andrew always says, and may amount to nothing.

But does Twiggy have a choice? How can he stop these massive companies from buying in, who have a vested interest in keeping a healthy competition in the market and ore prices low?. Obviously this would seem the strategy of the chinese to ensure they don't end up at the mercy of the duopoly of bhp and rio in the future in a worse case scenario?

 

[Value Collector]

If a deal does go through with the chinese firms, it could take several forms.

1, It may be a deal to sell an equity interest in one or more of the existing mines, leaving FMG with reduced equity position in the mined tonnes, but still earning a toll as the tonnes pass through the rail and port infrastructure, and still controlling it's other tenements and future developments.

2, It could be a sale of equity in the whole system, eg mines, port, rail, exploration tenements, future developments etc.

3, It could be some deal that essentially translates to a financing deal, such as the vale deal or a buy and lease back deal on some of the infrastructure eg power plants etc.

there are other options also.

My preferred deal would be 3, followed by 1, and the worst option would be 2.

 

[Value Collector]

But does Twiggy have a choice? How can he stop these massive companies from buying in, who have a vested interest in keeping a healthy competition in the market and ore prices low?. Obviously this would seem the strategy of the chinese to ensure they don't end up at the mercy of the duopoly of bhp and rio in the future in a worse case scenario?

He can't stop them buying shares in the open market, and I wouldn't have a problem with them doing that, that's not going to dilute any future gains, it will probably speed up the gains.

What can cause dilution of future value is deals that are basically capital raisings, where we sell them newly issued shares for less than what they are truly worth, or sell equity in our assets for a lot less than the value we would get by just holding them our selves and paying the interest on the current loans that funded them.

 

[stit]

He can't stop them buying shares in the open market, and I wouldn't have a problem with them doing that, that's not going to dilute any future gains, it will probably speed up the gains.

What can cause dilution of future value is deals that are basically capital raisings, where we sell them newly issued shares for less than what they are truly worth, or sell equity in our assets for a lot less than the value we would get by just holding them our selves and paying the interest on the current loans that funded them.

Given the FRIB is involved one would assume it involves a scenario like one of the three above rather than buying shares on the open market which is fair game for everybody? Or does foreign buy ins like this on the open share market still have to be approved?

If one of the three above eventuates what would you speculate on the share price as an immediate factor?

 

[Value Collector]

If one of the three above eventuates what would you speculate on the share price as an immediate factor?

It all depends on what the deal is, and most importantly the price the deal gets done at.

If a 50% stake in the existing mines was sold for a good price that basically cleared FMGs debt, and included a good Tolling charge for access to the port and rail infrastructure, and the exploration and development book remains 100% FMG I can see it having an immediate positive impact on the share price.

If the deal went through at a price that wasn't great, it may still have a positive impact at first, but the large future gains would be diluted.

If the deal was basically a capital raising at todays price, it would not be good, I can't see Andrew doing anything that would dilute him though, and the way the FMG management talked about potential deals last time they were looking at making some sales was pretty good, they seemed to have the shareholders interests at the front of their mind.

Last time they went it negotiations it was a plan B, and they never went through with a deal, I would think the current talks ( if they indeed are happening) are much the same, It's a Plan B, unless the price offered is very good.

 

[stit]

It all depends on what the deal is, and most importantly the price the deal gets done at.

If a 50% stake in the existing mines was sold for a good price that basically cleared FMGs debt, and included a good Tolling charge for access to the port and rail infrastructure, and the exploration and development book remains 100% FMG I can see it having an immediate positive impact on the share price.

If the deal went through at a price that wasn't great, it may still have a positive impact at first, but the large future gains would be diluted.

If the deal was basically a capital raising at todays price, it would not be good, I can't see Andrew doing anything that would dilute him though, and the way the FMG management talked about potential deals last time they were looking at making some sales was pretty good, they seemed to have the shareholders interests at the front of their mind.

Last time they went it negotiations it was a plan B, and they never went through with a deal, I would think the current talks ( if they indeed are happening) are much the same, It's a Plan B, unless the price offered is very good.

Awesome - thanks for that. Will be interesting to see how it pans out and how much truth there is to the matter. The semi annual update is just around the corner too i guess so will be interesting to see what sort of a profit they turn especially if the price continues to hover around the $60 mark until then.

 

[stit]

Thought this was an interesting read this morning...........


http://www.smh.com.au/business/comm...l-of-his-iron-ore-empire-20150526-gha0k6.html

 

[Value Collector]

Port stocks are down by another 3.8% this week.

Port stocks are down again this week, close to a 1% drop. So far they are about 40Million tonnes off their High.

It's interesting to note, the Port stocks are declining faster than the expected production rate of the Roy Hill mine.

 

[notting]

Andrew Forrest says he has no interest in selling down his 33 per cent share in Fortescue Metals Group and Fortescue will not issue new shares unless the price reflects the company's high underlying asset value.

Dat's a gooood boy. Goood boy. Smacko for that.

 

[Value Collector]

Dat's a gooood boy. Goood boy. Smacko for that.

Sounds like good common sense to me, He doesn't want to sell his own shares because he knows their true value, and he doesn't want to issue new ones that don't reflect that value.

 

[stit]

Port stocks are down again this week, close to a 1% drop. So far they are about 40Million tonnes off their High.

It's interesting to note, the Port stocks are declining faster than the expected production rate of the Roy Hill mine.

Yes - it would seem that the market is currently in a deficit position. I noted that credit suisse was the only group of analysts to come out this week and acknowledge that fact.

The author of the link that I posted seemed to be inferring that any purchase into the company would more than likely be through the share market itself. It seems to make sense as if it was via an equity arrangement fortescue would have to declare this to the asx?

 

[qldfrog]

The financial review had this long article last week end about the recently announcement of Chinese mega investment with Vale: Super mega tankers and very high quality ore at 11$ a tonne on their way.
The ships built on purpose to smash the delivery cost from Brazil to China.
It seems China is keen to ensure IO price will not go high again.
Expansion planned is huge and coupled with lower demand and higher scrap metal reuse, I do not see IO much higher in 5 years or ever.Could jitter but the trend is down IMHO
So unless they actually buy FMG at a current discount, I do not believe the SP will rise in medium or long term.
Did I miss it or was that critical news for FMG never discussed in that thread?

 

[ROE]

There are a few AFR articles that mentioned the deals and it essential boiled down to

they dont want to buy shares, they want to own asset if FMG goes down bankers cant take
the asset, they still owned by the Chinese.

and if that to happen (Chinese buying Assets) FMG holder dont get much as their profit from asset shrink. It just provide them with breathing space and some working capital.

Caught between a rock and a hard place, their only hope is Iron Ore price rise and AF will resist selling assets as long as he can but if banker force his hand there isn't much he can do.

 

[qldfrog]

There are a few AFR articles that mentioned the deals and it essential boiled down to

they dont want to buy shares, they want to own asset if FMG goes down bankers cant take
the asset, they still owned by the Chinese.

and if that to happen (Chinese buying Assets) FMG holder dont get much as their profit from asset shrink. It just provide them with breathing space and some working capital.

Caught between a rock and a hard place, their only hope is Iron Ore price rise and AF will resist selling assets as long as he can but if banker force his hand there isn't much he can do.

yes agree with you, not good for fmg but it is a fact now for Vale: the chinese de facto buy their mines and logistics.
Will be hard to compete and is not years away.

 

[notting]

Li Xinchuang, deputy secretary of the China Iron and Steel Association (CISA), which represents China's biggest state-owned steel mills, said last week it was inevitable Fortescue would require an equity partner for it to be able to compete on a global stage with BHP Billiton, Rio Tinto and Brazil's Vale.

I've been wrong on being China desperate to buy things before so take it with a grain of salt.

But I reckon that the purchase of ships from Vale rather than other assets and talking down FMG is a double edged threat to try to drive down FMG price so they can buy it. They can use the ships for both. If they owned FMG they would just make that their preferred source when deman is lower. It is encouraging that they have just baught PNA.

 

[orty53]

Baosteel has created a new Australian-registered company called "Baosteel Financing 2015 Pty Ltd", & issued a $500m bond in January - money to be used to purchase a FMG asset?

 

[Value Collector]

Baosteel has created a new Australian-registered company called "Baosteel Financing 2015 Pty Ltd", & issued a $500m bond in January - money to be used to purchase a FMG asset?

Where have they said they would be purchasing a FMG asset?

All I can see is that they have said the money would be used for debt repayments and "investment in overseas resources".

Boasteel are a joint owner of a mine with Rio, they also have existing deals with BHP and green field Pilbara projects on their books, So the money could be used for nearly anything.

 

[notting]

500m is a trivial amount with respect to FMG anyway.

 

[Value Collector]

500m is a trivial amount with respect to FMG anyway.

In other news, Chinese port stocks are down by over 1% again last week. port stocks are now the lowest they have been since 2013.