FMG - Fortescue Ltd

[qldfrog]

From a business standpoint. Increasing cost to create good will is understandable. That is what is being done. Fortescue is going green... Have a slide discussing this on every presentation... Put the climate folks onto someone else...

What I am actually saying is that it doesn't make sense for Mt. Piper Power Station to put solar panels on their buildings and claim that they are green or better yet Clarence Colliery coal mine to put solar panels up and claim that they are green.

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Anyone sane understands that but the narrative is what counts and they could even have these paid by gov tax offsets etc who cares about the actual carbon cost etc
As you say, will send the journos back to Rio crime against humanity ..or Meghan fight against the queen ..can not add LOL.
While BHP is parading its integration transgender female workforce..PR first, that is what counts.I doubt this will be worth anything, as the extremists will never be happy until we are back in caves, eating only some grass and not burning woodfire..see the BLM riot or the Trump business.
We will see

 

[Value Collector]

From a business standpoint. Increasing cost to create good will is understandable. That is what is being done. Fortescue is going green... Have a slide discussing this on every presentation... Put the climate folks onto someone else...

What I am actually saying is that it doesn't make sense for Mt. Piper Power Station to put solar panels on their buildings and claim that they are green or better yet Clarence Colliery coal mine to put solar panels up and claim that they are green.

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Fmg’s future Industries business is going to be a profit making business, and their investments into renewable energy are intended to lower their cost over time.

 

[basilio]

FMG is accelerating it's goals becoming carbon neutral across it's entire division. Now Looking at 2030 - as stretch goal.

It seems Twiggy believes that in time it's green hydrogen/renewable energy/green steel businesses will outstrip the iron ore components!!

Fortescue suggests green power may ‘outscale’ iron ore business

Fortescue Metals Group has moved its carbon neutrality target forward by 10 years to 2030 as the company advances its emissions reduction projects...

markets.businessinsider.com

 

[Sean K]

FMG is accelerating it's goals becoming carbon neutral across it's entire division. Now Looking at 2030 - as stretch goal.

It seems Twiggy believes that in time it's green hydrogen/renewable energy/green steel businesses will outstrip the iron ore components!!

Fortescue suggests green power may ‘outscale’ iron ore business

Fortescue Metals Group has moved its carbon neutrality target forward by 10 years to 2030 as the company advances its emissions reduction projects...

markets.businessinsider.com

Is FFI going to remain under FMG on the ASX or will they spin it off? I assume get it to a point and then spin it off and make some $$.

 

[basilio]

Is FFI going to remain under FMG on the ASX or will they spin it off? I assume get it to a point and then spin it off and make some $$.

Will be interesting to see what happens. Almost certainly FMG will retain a substantial investment in the companies. If they do spin them off they automatically capitalise of that shareholder value while retaining an ongoing dividend return.

I suspect Twiggy will want to ensure the various arms of FFI are symbiotic in terms of supporting each others objectives. For example a strong renewable energy company would supply FMG with power for it's mining operations as a start and then branch out to external markets.

My guess is that Twiggy would be making a big plan for substantial super fund investments in his little family. It would be based on the strong shareholders returns currently earned by FMG and the opportunity to do some genuine nation building. The fact that FMG will be fronting a minimum of $500M a year in development capital and will be the earliest market for output is an attractive bait.

I think with this vision and the current flood of investment funds and opportunities FMG and its subs will be a completely new ball game in 10 years.

 

[sptrawler]

It seems Twiggy believes that in time it's green hydrogen/renewable energy/green steel businesses will outstrip the iron ore components!!

Fortescue suggests green power may ‘outscale’ iron ore business

Fortescue Metals Group has moved its carbon neutrality target forward by 10 years to 2030 as the company advances its emissions reduction projects...

markets.businessinsider.com

I'm sure it will, two reasons, the growth in demand for fossil fuel alternatives and China diversifying its supply chain for iron ore.
Twiggy is trying to make FMG into another WES, which isn't a bad thing IMO.

 

[basilio]

FMG announced a 10 year $1.5B bond issue at 4.58% interest. Apparently they were swamped.

So if they decided to invest in their own shares they could get a yield of 13% and pocket the remaining 8.42% interest as pure profit.

Have to say at current prices it looks remarkably cheap. Iron Ore prices are still over the top and the spare capital, experience and drive to invest in huge renewable energy projects looks unbeatable. I am surprised that the overall market is taking a breather at the moment.

 

[over9k]

FMG announced a 10 year $1.5B bond issue at 4.58% interest. Apparently they were swamped.

So if they decided to invest in their own shares they could get a yield of 13% and pocket the remaining 8.42% interest as pure profit.

Have to say at current prices it looks remarkably cheap. Iron Ore prices are still over the top and the spare capital, experience and drive to invest in huge renewable energy projects looks unbeatable. I am surprised that the overall market is taking a breather at the moment.

Unless they aren't expecting profits to remain this high...

 

[Value Collector]

FMG announced a 10 year $1.5B bond issue at 4.58% interest. Apparently they were swamped.

So if they decided to invest in their own shares they could get a yield of 13% and pocket the remaining 8.42% interest as pure profit.

Have to say at current prices it looks remarkably cheap. Iron Ore prices are still over the top and the spare capital, experience and drive to invest in huge renewable energy projects looks unbeatable. I am surprised that the overall market is taking a breather at the moment.

At these interest rates it is definitely cheaper to pay bond interest rather than share dividends, so it makes sense to buy back stock.

$750 Million of the funds is earmarked to repay the 2022 bonds though, who knows what they will do with the rest, but back makes sense though.

 

[over9k]

Hence my suspicion. Why loan it at such a discounted rate if the dividend yield is so comparably high? It implies a massive risk premium to the stock itself.

 

[Value Collector]

Hence my suspicion. Why loan it at such a discounted rate if the dividend yield is so comparably high? It implies a massive risk premium to the stock itself.

What do you mean? the stronger the company the lower the bond interest rates will be, not higher. Bond interest rates do not go up as a company gets more profitable, they go down.

When a company sells bonds, the buyers of those bonds will judge the strength of the companies earnings. The stronger and more durable those earnings are the more likely they are to be able to repay those bonds when they come due.

The lower the risk of the bonds, the more institutions will bid for them which lowers their interest rate.

for example when FMG was seen as a risky company 10 years ago, their bonds sold at 10% yields, now it’s less than 5%.

 

[joeno]

FMG announced a 10 year $1.5B bond issue at 4.58% interest. Apparently they were swamped.

Good. It's the responsible way of getting funded rather than diluting shares with a new offering. Good for FMG, good for the shareholders, and bond holders too.

Looking forward to how FMG's green energy expansion plans unfold this decade. If it's a bust then it's a bust. I've already received in dividends from Fortescue MANY times more than the price i paid for the shares. Hope we will succeed and be heading towards $200B+ valuation

 

[over9k]

What do you mean? the stronger the company the lower the bond interest rates will be, not higher. Bond interest rates do not go up as a company gets more profitable, they go down.

When a company sells bonds, the buyers of those bonds will judge the strength of the companies earnings. The stronger and more durable those earnings are the more likely they are to be able to repay those bonds when they come due.

The lower the risk of the bonds, the more institutions will bid for them which lowers their interest rate.

for example when FMG was seen as a risky company 10 years ago, their bonds sold at 10% yields, now it’s less than 5%.

Which only increases the opportunity cost when you compare it to dividends.

Why would I loan money to the company at 4.58% if I was confident I could get 11.7% dividend yield by just buying the stock?

Either one of these things has been mispriced, or the market isn't actually confident of the 11.7% continuing.

 

[Value Collector]

Which only increases the opportunity cost when you compare it to dividends.

Why would I loan money to the company at 4.58% if I was confident I could get 11.7% dividend yield by just buying the stock?

Either one of these things has been mispriced, or the market isn't actually confident of the 11.7% continuing.

It just comes back to risk vs reward.

You lean towards bonds when you put safety of principle as a priority over maximising potential returns.

bond holders have a senior position over shareholders when it comes to income and capital, e.g Take Sydney airport as an example, right now dividends are suspended, but bond holder interest is still being paid, if the airport goes bust all bond holders must receive 100% of their investment back before shareholders receive anything.

There are all sorts of institutions and people that are in certain situations where bonds make sense over shares.

take an insurance company for example that has to pay a group of people disabled in accidents for the rest of their life a fixed amount, the most important thing to them is having safety of the principle they have set aside to make those payments and the steady reliable uninterrupted income.

however ofcourse shares on average earn more, but they will fluctuate in value and income more, so they appeal to people and institutions that can ride out the ups and downs, and be paid to accept a bit more risk.

both bonds and shares are valuable to a companies capital structure, and both appeal to different groups of long term owners.

 

[over9k]

I'm aware of all of this and you're echoing my point - if FMG's profits were rock solid/of a high confidence, why would you invest in a bond? This goes doubly so when the company is going to use the money to just buy its own stock back. The company's making literal free money at that point and doing it at your expense.

As I said previously, either something is mispriced, or there's a risk I'm not aware of.

 

[Value Collector]

I'm aware of all of this and you're echoing my point - if FMG's profits were rock solid/of a high confidence, why would you invest in a bond? This goes doubly so when the company is going to use the money to just buy its own stock back. The company's making literal free money at that point and doing it at your expense.

As I said previously, either something is mispriced, or there's a risk I'm not aware of.

Are you asking why I would invest in FMG bonds? The answer to that is simply that I don’t, I own FMG equity / shares.

But regardless of how strong the equity position is, the Bond will always be safer, share holders assets are a literal buffer for the bond holders assets.

As I explained earlier it’s situational, some investors value safety of principle over higher returns... I’m not sure why you struggle to understand that.

there is actually sometimes negative bond interest rates on some government bonds, where people are basically saying they are happy to give $100 to the government if they can be sure to get paid $99 in the future, compared to that a 5% FMG bond is very profitable.

 

[over9k]

I understand the principles completely, hence why I think what they're doing is idiocy. They're sacrificing a massive amount of return for a tiny, tiny bit of risk difference.

So either they're idiots, or there's a risk I'm not aware of.

 

[Value Collector]

I understand the principles completely, hence why I think what they're doing is idiocy. They're sacrificing a massive amount of return for a tiny, tiny bit of risk difference.

So either they're idiots, or there's a risk I'm not aware of.

Well the short term risk isn’t tiny, the shares will fluctuate in value and if the Iron ore price drops the dividend and share price can be cut in half, but bonds will continue earning interest, not every one is comfortable with that, even Mr Boggle from the video about index funds you posted in the other thread says at the start of the video he is 50% bonds / 50% equity, and he is one of the guys that understands investing more than just about anyone else.

owning equity is more profitable over the long term, but if you are a elderly retiree you need safety of principle more than you do huge returns, and corporate Bonds are a lot better than bank term deposits.

Think of all the people accepting 0.7% interest on Bank term deposits, I would much rather own a bond portfolio than bank deposits.

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in fact if you thought that in the future FMG share price might drop, you could but the bonds now and earn interest at a higher rate than banks, and then when the share price drops you could sell the bonds and buy equity.

this is a strategy Ben graham suggests, moving between 25% bonds 75% when the market is cheap and then moving to 75% bonds 25% shares when the market is getting expensive.

 

[basilio]

FMG share price down steeply again today. Reinforces, perhaps, the security angle of the bond issue.

At the same time of course if Twiggy thinks the current price is a bargain FMG can purchase stock and improve the value of the remaining shares. (Of which he currently owns 36%)

Has to some nervous nellies out there. Iron ore prices are still exceptionally high and the three months of 2021 FMG earnings will easily surpass the last 3 months of 2020 on iron ore prices

 

[over9k]

It's hard to read into a day (or month) when something's just following the same trend as everything else. I'm going to guess it's jitters over the USA & China meeting in Alaska over the weekend but that's just pure guesswork.