FMG - Fortescue Ltd

[basilio]

20-21 Financials out this morning. Second half dividend will be $2.11 per share.

Record full year performance delivers net profit after tax of US$10.3 billion and a 103 per cent increase in total dividends to A$3.58 per share

Highlights

• Continued focus on safety contributed to lowest ever Total Recordable Injury Frequency Rate (TRIFR) of 2.0 in the 12 months to 30 June 2021 (FY21), 17 per cent lower than 30 June 2020

• Highest ever annual shipments of 182.2 million tonnes exceeded guidance, with earnings and operating cashflow surpassing any year in Fortescue’s history

• Underlying EBITDA of US$16.4 billion, 96 per cent higher than FY20 with the Underlying EBITDA margin increasing to 73 per cent

• Net profit after tax (NPAT) of US$10.3 billion, increasing 117 per cent from FY20 and representing a return on equity of 66 per cent. Earnings per share (EPS) was US$3.35 (A$4.48)

• Net cashflow from operating activities of US$12.6 billion and free cashflow of US$9.0 billion after investing US$3.6 billion in capital expenditure

• Fully franked final dividend of A$2.11 per share, increasing total dividends declared in FY21 to A$3.58 per share, equating to A$11.0 billion and an 80 per cent payout of NPAT

• Cash on hand of US$6.9 billion and net cash of US$2.7 billion at 30 June 2021

• Fortescue Future Industries (FFI) established during FY21 to advance a global green hydrogen and renewable energy portfolio. FFI is a key enabler of Fortescue’s decarbonisation strategy

• Announced a revised target to achieve carbon neutrality by 2030, ten years earlier than the previous target, with significant progress on decarbonisation stretch targets achieved

.Total global economic contribution of A$30.2 billion in FY21, including A$8.0 billion in taxes and state royalties

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02414167-6A1047716?access_token=83ff96335c2d45a094df02a206a39ff4

 

[basilio]

It is interesting isn't it ? FMG's 20-21 financial results were essentially an open book. There would be no surprises in the final results simply confirmation of the sales, ore prices and development that had been reported in the past 6 months.

Last well the SP closed at $20 with the "market" being aware of the above facts. This morning the final figures are released and WOW SP jumps almost 6% on this great news.

I suggest this makes the point that critical analysis of a companies operations makes good investment sense enabling an early decision rather than reacting to SP happening after the fact. This would apply to avoiding dogs as well as exiting risky investments early and identifying great opportunities early in the piece. (Which is why we are on ASF I guess.. )

 

[divs4ever]

looks like i got it partly right buy grabbing a handful @ $19.90 roughly a week back , but wrong about FMG holding on to some extra divs so they could fund more expansion

i had been stalking FMG for years but was hoping for a MUCH lower entry price

maybe i will get to add more later

 

[spratty84]

looks like i got it partly right buy grabbing a handful @ $19.90 roughly a week back , but wrong about FMG holding on to some extra divs so they could fund more expansion

i had been stalking FMG for years but was hoping for a MUCH lower entry price

maybe i will get to add more later

I'm in the same boat mate, my plan is over time to grab smaller parcels in dips over the coming weeks, months, years. Brokerage costs will suck balls but I missed out early due to concentrating my coin in paying out our home which I completed before my goal of age 35. Then deployed all of my spare cash into the banks last year during the 20 year lows and a couple spec stocks.

 

[over9k]

I am talking about buying it as a long term hold.

share prices will fluctuate, but if you buy into FMG and and you are earning 8%+ on your money, and you know that eventually the share price will correct to a higher more rational level, you can just ignore the temporary 25% drop.

——————

Also, at the moment the people that bought in recently are not going to be earning 8%, they will be earning more like 20% in dividends, their income won’t drop to 8% until the Iron Ore price returns to $93.

So yea their share prices will fluctuate, but their cashflow will be super sized for a while, and then eventually return to a lower but still great level, and the share price should be higher too.

Mmm I posted why I don't think it's a long term bet though.

I mean I could be wrong, like I said, I don't hold the stock, but my macro-level analysis says FMG (and this entire country) is in for a whole world of hurt soon.

 

[Value Collector]

but wrong about FMG holding on to some extra divs so they could fund more expansion

With $0 Net Debt and retaining 20% of earnings for growth projects, they don't need to cut into their dividend.

What I see happening is that if there is years where more than 20% of income is needed to fund the projects, they will draw on debt facilities and in years where less than the 20% they retain is required they will pay down debt facilities.

 

[Value Collector]

but my macro-level analysis says FMG (and this entire country) is in for a whole world of hurt soon.

Feel free to post that analysis.

I think the global economy is going to continue to do well especially as we recover from covid, and Iron Ore will continue to be in high enough demand in relation to supply to create a longterm average price where FMG makes decent profits on average, over time.

Sure there will be ups and downs, there always has been.

 

[againsthegrain]

So OP with the div + fmg current at ~21 are u close at breaking even now? If you

Mmm I posted why I don't think it's a long term bet though.

I mean I could be wrong, like I said, I don't hold the stock, but my macro-level analysis says FMG (and this entire country) is in for a whole world of hurt soon.

She'll be right, she always is

 

[over9k]

Feel free to post that analysis.

I think the global economy is going to continue to do well especially as we recover from covid, and Iron Ore will continue to be in high enough demand in relation to supply to create a longterm average price where FMG makes decent profits on average, over time.

Sure there will be ups and downs, there always has been.

I did above. Massive population implosion right across the world, especially in China, the chief customer of australian dirt.

It also depends what you meam by long term too. I'm looking 10 years out here.

 

[over9k]

@Joe Blow Might be worth merging this with the actual FMG thread?

 

[basilio]

Mmm I posted why I don't think it's a long term bet though.

I mean I could be wrong, like I said, I don't hold the stock, but my macro-level analysis says FMG (and this entire country) is in for a whole world of hurt soon.

Interesting perspective.

It's certainly possible that the general Australian economy is in for rough economic times. That would then open the question of what investments would still be viable ?

From my POV I see FMG as producing a key resource at one of the lowest costs of production in the market. It also has minimum financing costs which would impact the balance sheet. In practical terms that means that if there is price pressure on iron ore they will still be profitable well after many competitors have to go into mothballs.

On top of that I see FMG as having developed a formidable engineering expertise which they are now directing to a host of very big renewable energy/mining projects. This history and experience is going to be invaluable in gaining external investment so I believe at least a few of them will get off the ground.

They also have enough surplus capital to kick off these projects. Some of the projects are also internal which in themselves will improve operating efficiencies even further and add an extra sales component to their bottom line. Producing green steel for example from their own ore and using their own renewable energy infrastructure.

I'm sure there are other promising investments around. But it is rare IMV to see a mature company that is already producing big dividends also capable of developing such a potentially profitable range of indemand projects.

 

[over9k]

Interesting perspective.

It's certainly possible that the general Australian economy is in for rough economic times. That would then open the question of what investments would still be viable ?

From my POV I see FMG as producing a key resource at one of the lowest costs of production in the market. It also has minimum financing costs which would impact the balance sheet. In practical terms that means that if there is price pressure on iron ore they will still be profitable well after many competitors have to go into mothballs.

On top of that I see FMG as having developed a formidable engineering expertise which they are now directing to a host of very big renewable energy/mining projects. This history and experience is going to be invaluable in gaining external investment so I believe at least a few of them will get off the ground.

They also have enough surplus capital to kick off these projects. Some of the projects are also internal which in themselves will improve operating efficiencies even further and add an extra sales component to their bottom line. Producing green steel for example from their own ore and using their own renewable energy infrastructure.

I'm sure there are other promising investments around. But it is rare IMV to see a mature company that is already producing big dividends also capable of developing such a potentially profitable range of indemand projects.

Yeah, hence the difference between macro level and company specific.

Thing is, billionaires are not stupid people. They are acutely aware of the aforementioned population implosions. If I were FMG I'd be doing everything I can to target india (be it as a customer or to set mines up in india itself) but again, I'm not twiggy nor an FMG analyst so this is little more than a musing on my behalf.

RIO for example has pulled the trigger on the largest copper mine in the world and putting it in the USA, and these things do not take 5 minutes to plan, so they've seen what I'm talking about coming several years out.

What FMG's plan is I don't know but I'm pretty doubtful they don't have one - I just don't know what it is.

As I said, I suspect it's india, but that's just a suspicion.

 

[Value Collector]

I did above. Massive population implosion right across the world, especially in China, the chief customer of australian dirt.

It also depends what you meam by long term too. I'm looking 10 years out here.

I don't think that is an issue, "The World" has a long way to go before it is fully developed, I mean most of Africa, India, Middle East, and South America still have a long way to go before their standard of living and consumption of steel resembles developed nations, These will be booming customers for Chinese made steel products.

Not to mention the demand that will still be coming from developed economies for infrastructure and just general consumption, the global population is still growing quite rapidly, and so is the expectations for standard of living.

--------------------------

RIO for example has pulled the trigger on the largest copper mine in the world and putting it in the USA

You, have to build the mine where you find the Ore, they didn't "put" it in the USA, that just happens to be where they found the ore, they also have mines in Asia and South America.

 

[Joe Blow]

@Joe Blow Might be worth merging this with the actual FMG thread?

I'll let it run its course as a separate discussion then merge the threads.

 

[over9k]

I don't think that is an issue, "The World" has a long way to go before it is fully developed, I mean most of Africa, India, Middle East, and South America still have a long way to go before their standard of living and consumption of steel resembles developed nations, These will be booming customers for Chinese made steel products.

Not to mention the demand that will still be coming from developed economies for infrastructure and just general consumption, the global population is still growing quite rapidly, and so is the expectations for standard of living.

--------------------------



You, have to build the mine where you find the Ore, they didn't "put" it in the USA, that just happens to be where they found the ore, they also have mines in Asia and South America.

Copper. The RIO mine is copper.

The best copper deposits in the world are in Chile, but they didn't put it there. It's worth thinking about why

 

[Value Collector]

Copper. The RIO mine is copper.

The best copper deposits in the world are in Chile, but they didn't put it there. It's worth thinking about why

Yes Copper Ore is what I was referring to, it is what you pull out of the ground in a copper mine. As I said Rio already mines copper ore in Chile and Mongolia and will mine it where ever they can find it.

Each new mine would be based on economics and political stability of the host country, it’s pretty easy to move shipping containers full of copper concentrate around the globe, it’s not necessary to have a mine next to a factory.

 

[over9k]

Yes Copper Ore is what I was referring to, it is what you pull out of the ground in a copper mine. As I said Rio already mines copper ore in Chile, Mongolia and will mine it where ever they can find it.

Again, so why not just mine more in Chile (or wherever else)?

What I'm getting at here is they didn't start the mine in the USA because it was the only place to do it. There were other options available but they went with USA.

Again, there is a reason.

 

[Value Collector]

Again, so why not just mine more in Chile (or wherever else)?

What I'm getting at here is they didn't start the mine in the USA because it was the only place to do it. There were other options available but they went with USA.

Again, there is a reason.

Do they have mining rights to a virgin deposit of equal quality waiting to be mined in Chile?
I don’t know, but would say economic factors and political stability are their major concern, distance from end user just comes down to shipping costs, which are not large.

Rio would be green lighting projects based on which one offers the best return on capital, in their words their projects “compete for capital”, eg if project A promises a 15% return and project B promises a 25% return, then project B will get the green light.

As I said shipping containers of concentrate or metal are pretty easy to move, it just comes down to cost.

 

[over9k]

Do they have mining rights to a virgin deposit of equal quality waiting to be mined in Chile?
I don’t know, but would say economic factors and political stability are their major concern, distance from end user just comes down to shipping costs, which are not large.

Rio would be green lighting projects based on which one offers the best return on capital, in their words their projects “compete for capital”, eg if project A promises a 15% return and project B promises a 25% return, then project B will get the green light.

As I said shipping containers of concentrate or metal are pretty easy to move, it just comes down to cost.

Unless you're expecting your market a decade from now to look VERY different to your market now


The reason why RIO have opened up this mine in the USA is the same reason why car manufacturers are opening plants in mexico and chip manufacturers are building plants in arizona: Anticipation of what their future market will look like (and where it will be).

When you think about how many people are in asia vs usa, it doesn't make sense to ship the chips across the pacific to get to your target market does it?

Unless, of course, asia isn't going to be your target market.

 

[divs4ever]

since we are in ' uncharted territory ' i have NO idea what the market will look like in 10 years

i can guess , but there is some chance i don't even go close

our biggest customer might well be Vietnam , India , less likely Mexico , and Pakistan , over maybe even Indonesia which MIGHT become a center for metal smelting , and then on-selling bar-stock or ingots