FMG - Fortescue Ltd

[joeno]

I don't think 3 years is a long time to wait to quadruple your money. FMG is probably going to pay a tax advantaged dividend better than I could get with bank interest over the next three years, plus a decent capital gain, that's good enough for me.

I would rather a bumpy ride that nets me over a 50% per year averaged return over the next 3 years, than a steady 3%

I'm betting the same as you but with considerably less investe in this stock than you have.

Wondering why aren't you investing between the other iron ore stocks such as MGX and BCI?

 

[Value Collector]

Wondering why aren't you investing between the other iron ore stocks such as MGX and BCI?

Simple, those companies don't compare to FMG.

Look at FMG's Infrastructure, their system of ports, rail lines, 4 operating mines, exploration acreage, discovered reserves for future projects etc. the other companies don't compare.

Take a look at this video, they assets beat anything those bci has, in fact bci actually pay FMG to ship their ore on their rail and port infrastructure.

[video]https://m.youtube.com/watch?v=PRw3m_EBknk[/video]

 

[joeno]

Simple, those companies don't compare to FMG.

Look at FMG's Infrastructure, their system of ports, rail lines, 4 operating mines, exploration acreage, discovered reserves for future projects etc. the other companies don't compare.

You wouldn't expect them to have FMG's infrastructure given the size of their company. For a co like BCI you'd expect once they get a proper footing, reduce their expenses and become profitable they would surge more than FMG.

Can i ask how much % of your total portfolio you have in FMG? Sounds like this is your LT punt of the decade!

 

[stit]

Iron ore Inventories at chinese ports were down by another 1.04% this week.

Less than 20 days supply, and a level not seen for almost 2 years.

Whilst this may still indicate a shortfall in supply, I'm starting to think that the inventory levels being at their lowest for a long period of time ( 2 years ) is becoming less and less relevant if steel mills are carrying less and less inventory as demand contracts. This has to be the case given the 11 % drop in ore prices in the last week even though ore inventory continues to decline.

On another note - how is it that everybody seems to have an idea of roy hills break even price? Where would people get an idea on this information given none of the necessary info is public?

 

[stit]

Simple, those companies don't compare to FMG.

Look at FMG's Infrastructure, their system of ports, rail lines, 4 operating mines, exploration acreage, discovered reserves for future projects etc. the other companies don't compare.

Take a look at this video, they assets beat anything those bci has, in fact bci actually pay FMG to ship their ore on their rail and port infrastructure.

[video]https://m.youtube.com/watch?v=PRw3m_EBknk[/video]

What do you think about this report that the reduction in their cost base is unsustainable? I also note that this analyst is one of many that seem to refuse to believe that their cost base is at $39 and rates it much higher at $44. He also goes on to state he is only expecting $300m in free cash flow this financial year, which would suggest that he believes that fmg will only clear approximately $2 per tonne this financial year.

http://www.afr.com/business/mining/...eyond-two-years-analysts-20150702-gi3mgx.html

Fortescue says it can reduce its cost of production, known as cash or C1 costs, to $US18 a tonne this fiscal year – from $US26 a tonne last half – and all-in-costs to $US31 a tonne, which includes sustaining capital expenditure of just $US2 a tonne.

"We think this is sustainable only in the short to medium term and expect the average group strip ratio to increase … this will have a significant impact on FMG's all-in costs and product quality in our view," Mr Young said.

The miner has said its break-even point – the price at which it is not making or losing cash – is tracking at $US39 a tonne, from $US60 a tonne late last year, and the group is aiming to reduce that further.

Fortescue is on track to achieve its production cost targets, he says, but takes a different view on its break-even point – estimating it at about $US44 a tonne right now.

"The question is how long can they do this for, and what potential outcome does it incur in terms of curtailing or reducing the reserve life?" Mr Lawcock said.


"They've done a commendable job [in reducing costs], but that break-even number in the low $US40s, or $US39 if you take their number, will only be sustainable for the next one to two years. It will then start to move up gradually, because there will be an inability to maintain sustaining capital at $US2 a tonne."

He tips costs will creep back up by at least $US5 to $US6 a tonne from about 2020.

Mr Young is tipping Fortescue will generate about $US300 million in free cash flow in the current financial year, and for it to take three to four years to reduce gearing to a comfortable level.

 

[Value Collector]

You wouldn't expect them to have FMG's infrastructure given the size of their company. For a co like BCI you'd expect once they get a proper footing, reduce their expenses and become profitable they would surge more than FMG.

The infrastructure is important for two reason, the first reason is that in the Iron Business, the large infrastructure is what gives you the lower running cost, FMG's scale is what will give it the ability to reduce costs and basically be in the position of the other low cost miners. Low scale mines, trucking ore and begging for ship loading capacity all increase you costs.

Also, The Infrastructure provides safety to the investment.

When you purchase stock in BCI, you own a relatively high cost mine and that's it.

When you have a lot more assets backing your stock, which could be sold off individually or partial equity interest sold, which combined have value far in excess of its share price, eg you have 4 low cost mines, associated power plants and processing equipment, a rail line and a 5 birth/3 loader port, exploration acreage and resource base.

The rail lines and port are fantastic assets to own even if FMG didn't have mines, they will be operating for the next 100 years even after FMGs existing mines are depleted.

Can i ask how much % of your total portfolio you have in FMG? Sounds like this is your LT punt of the decade

about 25% of my share portfolio, probably close to 10% of my net worth, It's certainly a large play for me, But it wouldn't wipe me out if it went pear shaped, but yes it would make my decade, except CZZ has already made this decade for me, lol

 

[Value Collector]

What do you think about this report that the reduction in their cost base is unsustainable? I also note that this analyst is one of many that seem to refuse to believe that their cost base is at $39 and rates it much higher at $44. He also goes on to state he is only expecting $300m in free cash flow this financial year, which would suggest that he believes that fmg will only clear approximately $2 per tonne this financial year.

http://www.afr.com/business/mining/...eyond-two-years-analysts-20150702-gi3mgx.html

Fortescue says it can reduce its cost of production, known as cash or C1 costs, to $US18 a tonne this fiscal year – from $US26 a tonne last half – and all-in-costs to $US31 a tonne, which includes sustaining capital expenditure of just $US2 a tonne.

"We think this is sustainable only in the short to medium term and expect the average group strip ratio to increase … this will have a significant impact on FMG's all-in costs and product quality in our view," Mr Young said.

The miner has said its break-even point – the price at which it is not making or losing cash – is tracking at $US39 a tonne, from $US60 a tonne late last year, and the group is aiming to reduce that further.

Fortescue is on track to achieve its production cost targets, he says, but takes a different view on its break-even point – estimating it at about $US44 a tonne right now.

"The question is how long can they do this for, and what potential outcome does it incur in terms of curtailing or reducing the reserve life?" Mr Lawcock said.


"They've done a commendable job [in reducing costs], but that break-even number in the low $US40s, or $US39 if you take their number, will only be sustainable for the next one to two years. It will then start to move up gradually, because there will be an inability to maintain sustaining capital at $US2 a tonne."

He tips costs will creep back up by at least $US5 to $US6 a tonne from about 2020.

Mr Young is tipping Fortescue will generate about $US300 million in free cash flow in the current financial year, and for it to take three to four years to reduce gearing to a comfortable level.

I guess time will tell who is right, I have got my position, we just have to wait now.

 

[stit]

What is the underlying story here? Has fortescue always had forward contracts for its ore? Does this in some way suggest that fortescue has lost some level of corporate support from china?

Furthermore, and rather shocking given the excesses that look apparent in the iron ore market, we learned that, for the first time ever, Fortescue Metals Group is offering iron ore on a spot basis, or, for all intents and purposes, “dumping” iron ore into China.

 

[ROE]

I thought they scrapped the contract pricing a few years ago
when Iron ore price was roaring up BHP and the like got greedy and decided they want to play spot price instead so most miners now sell at spot price, it now back fire

that is my recollection I could be wrong.

 

[Wysiwyg]

$1.61 low to $1.79 bounce today. Can't believe this crap. Sold yesty for $1.73

 

[Potator]

$1.61 low to $1.79 bounce today. Can't believe this crap. Sold yesty for $1.73

And now you can buy them again for 172. Who knows what's going on immediate term - it's just trading.

Re: Price setting, didn't it become a bit irrelevant when the contracts seemed to be unenforcable when Chinese customers pulled out of high price contracts saying they couldn't pay? In any case the best thing would be a transparent source of spot and bulk prices that everyone refers to and clarity on which is being referred to.

All these headlines about IO dropping most in x number of years etc and they don't bother to say whether they're talking about spot price and what the significance is. The media loves a headline!

 

[tech/a]

$1.61 low to $1.79 bounce today. Can't believe this crap. Sold yesty for $1.73

Why didn't you buy (again) at $1.73 or anywhere in between $1.61 with a stop on the low?

This "Crap" is to be expected. China/Greece---highly volatility
China Iron ore going limit.

 

[notting]

$1.61 low to $1.79 bounce today. Can't believe this crap. Sold yesty for $1.73

Our miners were sold off heavily before the spot tanked.

iron ore futures in China shot nearly 6 per cent higher in early trade, signalling the sell off in spot prices may take a break tonight.

And someone had their buying hat on this morning.

I'm seeing two hands on the handle so far.

RIO's only up .9 is yielding 5%, buying itself and has less downside risk.
And if you don't like the look of the daily chart, blow it out to the weekly. One way to make yourself feel better.

 

[sydboy007]

I thought they scrapped the contract pricing a few years ago
when Iron ore price was roaring up BHP and the like got greedy and decided they want to play spot price instead so most miners now sell at spot price, it now back fire

that is my recollection I could be wrong.

Actually the Chinese started to break contracts so BHP and RIO took advantage of that to break down the annual price setting of I/O. Prob for the best as it got away from the annual fight over pricing.

Can see the same issue now appearng in the LNG market now that the contract price is way over spot. Japan has not accepted test cargoes from Gorgon - in the past they have but since they can buy on the spot market there's no incentive for them to start paying contract pricing before they have to. Something like 2.4M tonnes of LNG could hit the spot market betwen now and April, so expect the price gap to widen.

I can see a LOT of pressure on the LNG companies to renegotiate the contracts. There's massive oversupply going out to the mid 20s.

 

[Value Collector]

What is the underlying story here? Has fortescue always had forward contracts for its ore? Does this in some way suggest that fortescue has lost some level of corporate support from china?

Furthermore, and rather shocking given the excesses that look apparent in the iron ore market, we learned that, for the first time ever, Fortescue Metals Group is offering iron ore on a spot basis, or, for all intents and purposes, “dumping” iron ore into China.

Fortescue sells some spot cargos, however most of its ore is sold via pre payment agreements, eg FMG takes payment in advance for a set $$$ amount of ore, with set tonnes delivered at a certain intervals eg 250k tonnes delivered a week, the price of the ore is calculated using a formula based on the average spot price I think.

Eg company X pays FMG $100million for a set amount of ore to be delivered each month until the $100million has been used up. If the price drops, they get more ore for their $ if the price rises they get less.

Based on their last figures they had over $1billion of prepayments on their balance sheet.

 

[So_Cynical]

FMG under $1.80 - has always been the way to go....screaming buy i would think.

 

[skc]

FMG under $1.80 - has always been the way to go....screaming buy i would think.

Always? It's only happened 3 times, and one of them was the bottom of the GFC 7 years ago.

 

[stit]

Just re looking at fmg price guidance for 2016. Why do they add what appears to be a nominal figure of a $5 price adjustment when they receive a 15% discount? A $5 price adjustment would equate to a sub $40 per tonne price?

 

[dat111]

Anyone know what is holding up Fortescue's Quarterly Report?

 

[stit]

Anyone know what is holding up Fortescue's Quarterly Report?

I think its due on thursday