FMG - Fortescue Ltd

This is funny, Nev Power, 'Couldn't even remember how the conversation between, Vale and FMG got started." But the Fin Review helped him with that today -

The extraordinary deal between Fortescue Metals Group and Brazilian iron ore giant, Vale, started with a cold call from Andrew Forrest to Vale's chief executive Murilo Ferreira last June.

The Brazilian was certainly surprised to hear from one of his key competitors but Forrest soon convinced him the two companies had a mutual interest in cooperation. After all, he had a particularly interesting business proposition that Vale had never considered.

FMG's goal was always to keep the talks with Vale tightly held at senior executive and board level. It deliberately did not employ any advisers – often a source of leaks – in part to ensure no news of the developing plan got out.

Read more: http://www.afr.com/opinion/columnis...ith-a-cold-call-20160308-gndi8u#ixzz42JRzXsEe
Follow us: @FinancialReview on Twitter | financialreview on Facebook

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luutzu said:

So you're back in black yet? [I'm on a similar ship so can crack that kind of joke right?]

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I am not entirely sure of what my entry cost is, because I bought several parcels and I got them via a put option operation I was running on them, so there was various strike prices, but I collected premiums which reduces that and most of the puts I wrote over the 2-3 years expired out of the momey so premiums collected there reduces the total cost of my fortescue position, If I had to guess my cost would be less than $3 / share.

But as I said, this stock is worth so much more once we get through, I am not phased at working out exactly what my breakeven mark is.

notting said:

I was hoping I might get an Iron Ore Slurpee when I go to China.

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Maybe just eat some steak if you need Iron in your diet.

skc said:

Yes... I do find it funny that the market seems to so quickly forget that Vale isn't exactly a picture of health as recently as 2 weeks ago.

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No doubt that's why they are exploring options to reduce costs.

I don't think FMG will sell any existing assets to them, they would want full price for them and vale probably wouldn't want to pay up, In the future they may do a deal with vale such as the Iron bridge deal they have done with a chinese party, where they basically get the other party to fund a project on one of their tenements, and then earn a royalty on the other parties share of the ore + transport fees for use of their railway and port + fee's for operating the project and then full earnings on the FMG equity portion.

Also interesting... the FMG debt in the second market are now trading at some 5% premium to face value.

The market does have a short term memory.

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I guess they got sick of selling it back to fmg at a discount, Maybe FMG's debt repurchases have helped force up the price

What would Vale do with its current low grade ore? Does this imply / hint that they will reduce production of low grade ore?

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A few options, firstly they have already said last year they were likely going to shut down some of their low quality mines, but most likely they will just sell the lower grade or in market on their side of the world, eg Steel mills in Brazil, the rest of the Americas and Europe, where the transport costs are lower.

They can also feed the lower quality ore into pelletising plants.

I can see blending achieving an operational cost benefit... but without a change in the demand and/or supply dynamics, reduction in cost will quite likely flow straight to a reduction in price

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As I said before, I think the biggest change here is going to be the continued shutdown of the expensive chinese mining operations, they are losing money even at $70 / tonne, so vale and FMG will be fine with a $30 break even.

It takes time to play out, but most of the worlds Iron ore production is well above the costs of RIO,BHP,FMG and VALE so over time the Iron price will settle well above the breakeven mark of this group.

It takes time to settle, but Iron/steel industry will adjust and find ways to reduce the expensive supply and use more of the big fours capacity.

We are already seeing this by people around the world choosing to import steel from china rather than use their own countries capacity, the low cost of Iron ore has already forced down the price of scrap, so now its not worth while shipping scrap to Asia from America, meaning the scrap will stay in America, offsetting USA Iron ore production and increasing Asian reliance on virgin materials.

These and many other things are basic arbitrages that will continue to grow and reduce the utilisation of the worlds more expensive mines, and increase utilisation of the 4 low cost guys.

Fortunately I did end up getting a short on it after it was not available for a while, at it's highs of course! .
Unfortunately it hasn't performed as well as expected after last nights rout.
Fortunately that just means the opportunity is extended to do more.
Fortunately for FMGs fans its fundamentals must be helping it whilst IO is still higher than anticipated. Unfortunately market sentiment will trounce this and the below will make it fundamentally justifiable to see $1.40 again.

Iron ore dropped hard overnight, eroding Monday's record surge, amid a revival in concern that global supply is outpacing demand.

Spot iron ore delivered to Qingdao port fell 8.8 per cent to $US58.02 a tonne. The price dipped 0.2 per cent on Tuesday after Monday's 19 per cent rally to the highest since June. The retreat was preceded by losses on futures in Singapore and China.

Iron ore powered higher on Monday after Beijing talked up its commitment to sustaining growth, bolstering the outlook for demand and spurring speculation that the advance had been reinforced as some investors rushed to close out bets on losses.

The rally prompted banks from Goldman Sachs to Citi to say that the gains wouldn't last, citing slowing steel demand in China and rising mine supply. The raw material has slumped for the past three years amid a worldwide surplus.

The global iron ore market remains grossly oversupplied, demand in China is faltering and there's a severe glut of steel, according to Li Xinchuang, deputy secretary-general of the China Iron & Steel Association.

This week's gyrations had been driven by shifts in futures in China, according to Lourenco Goncalves, chief executive of Cliffs Natural Resources, the largest US producer. The price is controlled by the futures market and by speculation on the Dalian exchange, Goncalves said in an interview.

"It has no correlation at this point with the physical market," said Goncalves.

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notting said:

Unfortunately market sentiment will trounce this and the below will make it fundamentally justifiable to see $1.40 again.

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For $1.40 to be justified by fundamentals Iron ore price would have to be $32 / tonne, forever and FMG would have to never reduce operating costs.

Currently the Iron ore price is well over $50 / tonne, hell I am happy with anything over $40

Value Collector said:

For $1.40 to be justified by fundamentals Iron ore price would have to be $32 / tonne, forever and FMG would have to never reduce operating costs.

Currently the Iron ore price is well over $50 / tonne, hell I am happy with anything over $40

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Unfortunately I think with a yield of 1.85% and downside trading price of stock, coupled with further capital expenditure required to develop mines for the longer term. I would not be holding on with too much glee.

notting said:

Unfortunately I think with a yield of 1.85% and downside trading price of stock, coupled with further capital expenditure required to develop mines for the longer term. I would not be holding on with too much glee.

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I think there is a lot you are missing, we will see who is right, lets look back 12 months from now and decide whether it was worth holding

Why wait for 12 months. I can enjoy looking back to March 2012 FMG price 6.00 where I was a roaring bear amongst all the break out bulls#!) and putting on a fat short.

https://www.aussiestockforums.com/forums/showthread.php?t=1935&p=692302&viewfull=1#post692302

Crystal balls working pretty good so far!!
corn:

Fortescue today announced that Mr Peter Meurs, Director Development and Executive Director on the Fortescue Board, has accepted a full time international role with The Church of Jesus Christ of Latter-day Saints and resigned his Board and executive positions at Fortescue.

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:22_yikes:

Got absolutely pounded at the close yesterday and is following a similar pattern today.

FMG have reduced their debt in the last few days by another $1.2 Billion, Bringing total debt reduction this year to $2.3 Billion.

It's interesting to note that means total debt reduction has be equal to about $0.74 / share, another interesting point to note is that with the reductions operating costs, at $55/ tonne Iron price, $0.99 per share free cash flow can be be achieved.

What that means for the share price is up to you to decide, but its looking pretty good to me.

Value Collector said:

What that means for the share price is up to you to decide, but its looking pretty good to me.

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Well all you making sense of it has proven correct, so well done to you.

The way management have run this thing since they looked over the edge of the debt black hole is simply flawless and brilliant.
There is no way FMG is going under now, even if we do have the steal 'ice age' as declared by the Chinese and if FMG management keep running it like this, and they bloody well should, they are going to go very well.

Problem is FMG will get sucked into the over supply issue of IO which makes it pretty risky on the sentiment side.
All resource companies should be run like this has been since they made paying off the debt the number one priority.

Value Collector said:

FMG have reduced their debt in the last few days by another $1.2 Billion, Bringing total debt reduction this year to $2.3 Billion.

It's interesting to note that means total debt reduction has be equal to about $0.74 / share, another interesting point to note is that with the reductions operating costs, at $55/ tonne Iron price, $0.99 per share free cash flow can be be achieved.

What that means for the share price is up to you to decide, but its looking pretty good to me.

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Is your price target still $7 VC?

joeno said:

Is your price target still $7 VC?

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As a minimum.

Value Collector said:

As a minimum.

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Watching it carefully down 5.5% today. IO stalling it's falling at 55. AU$ going with it. Looks like they will get another 500m off the books shortly.

Value Collector said:

As a minimum.

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Some time this decade? I shouldn't be laughing i have a large holding in FMG as well. But forecasts for next year seem pretty dismal.

joeno said:

Some time this decade? I shouldn't be laughing i have a large holding in FMG as well. But forecasts for next year seem pretty dismal.

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Which forecast?

Value Collector said:

Which forecast?

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For Iron Ore* $40 predictions http://www.smh.com.au/business/mark...o-bolster-iron-ore-bulls-20160425-goe4uy.html

I suspect some dodgy tactics to manipulate commodity prices by the banks to serve their short positions: http://www.afr.com/business/mining/...llish-say-economists-analysts-20160505-gon6h2

It's funny how they can make such a specific prediction for next years then whenever the IO price experience an increase or decrease they can "adjust" all their original forecasts by absurd amounts and still call themselves top tier Analysts.

joeno said:

For Iron Ore* $40 predictions http://www.smh.com.au/business/mark...o-bolster-iron-ore-bulls-20160425-goe4uy.html

I suspect some dodgy tactics to manipulate commodity prices by the banks to serve their short positions: http://www.afr.com/business/mining/...llish-say-economists-analysts-20160505-gon6h2

It's funny how they can make such a specific prediction for next years then whenever the IO price experience an increase or decrease they can "adjust" all their original forecasts by absurd amounts and still call themselves top tier Analysts.

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I would take that forecast with a grain of salt, but either way even if iron ore price did average $40 FMG is still worth about $6, if it averaged $43 it's worth over $7, and as they further reduce costs and interest expenses, profit per tonne rises.

I am not saying iron ore won't fluctuate and drop to $40 or below, but that's not what I care about, I care about what iron ores average price was over the year compared to their average production cost, if it went sub $40 for a couple of weeks but before that it was over $50 for a few weeks they offset each other.

You can see in the debt reduction they are generating value, that's all I care about, the market will eventually wake up.

Value Collector said:

I am not saying iron ore won't fluctuate and drop to $40 or below, but that's not what I care about,

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I care about this -

Billionaire mining magnate Andrew Forrest is challenging world leaders to abolish slavery by enacting laws which will eradicate forced labour practices.

There are an estimated 45.8 million people living in slavery - including 4300 in Australia - according to the 2016 Global Slavery Index, released today.

The index, published by Forrest's Walk Free Foundation, examined practices such as forced labour, human trafficking, debt bondage, child exploitation and forced marriage, surveying 43,000 people in 25 countries.

It found that almost 60 per cent of the world's slaves are in five countries: China, India, Pakistan, Bangladesh and Uzbekistan.

The research, conducted by Gallup, estimated 4300 people in Australia are living in slavery with Forrest identifying food production and the sex industry as two areas vulnerable to the exploitation of workers.

"From the food processing industry in the eastern states to the tomato growing industry in Western Australia, we have unfortunately discovered that forced labour exists in Australia," the Fortescue chairman said. "There is also forced prostitution."

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Andrew could just be trying to cover his tracks, we'll stop if you stop, we can't stop it -

Mr Forrest found "abhorrent" forced labour practices in Fortescue Metals' supply chains after ordering an audit, warning that other corporations and governments would find the same if they looked.

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But the fact that he is challenging publicly his customers even, it's a good thing.

Economics and business realities aside. This stock deserves to go to $100. Andrew is a legend

Value Collector said:

I would take that forecast with a grain of salt, but either way even if iron ore price did average $40 FMG is still worth about $6, if it averaged $43 it's worth over $7, and as they further reduce costs and interest expenses, profit per tonne rises.

I am not saying iron ore won't fluctuate and drop to $40 or below, but that's not what I care about, I care about what iron ores average price was over the year compared to their average production cost, if it went sub $40 for a couple of weeks but before that it was over $50 for a few weeks they offset each other.

You can see in the debt reduction they are generating value, that's all I care about, the market will eventually wake up.

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You should call up today tonight and do a segment on how great the company is. People need to know