FMG - Fortescue Ltd

[Humid]

I'm out

 

[Garpal Gumnut]

FMG like many stocks in it's sector is at a cross roads. A Materials company with a change of focus causing distress to some and some glimmer of opportunity to others.

We live in exciting times with some chance of respite from the plague with however the cousins in Russia and China asserting their military might. The latter is Australia's best customer for iron ore.

The esoterics tell us we need to move to alternate energies as well and FMG would appear to be the best funded Hydrogen stock in Australia via it's FFI outfit. An untested division with high hopes which I share.

War is about and the markets are selling down so it is no surprise to see FMG fall on some volume after the announcement of a reduced divi a few days ago. Some want FMG to be a pure iron company, others such as I would be comfortable to wait, to a point.

Fortune shone with my entry last year purely on a rising RSI in a consolidation and I added on the first retracement. I had missed the run up from $8 some years before, so I was pleased to see it move to $23 or so. It is now testing a significant support/resistance line under $20.

Will I lose my winnings which is at times my lot? Will I sit? Will I get out? Would it be mad to add?

A chart.

gg

 

[sptrawler]

@Garpal Gumnut I always live by the saying allow for the worst and hope for the best, another saying with a similar sentiment I also try to live by (but you can't have too many or you start sounding like a nutcase) is, change what you can accept what you can't.

If a war does happen, all our lives, all our savings, all our plans, go out the window, the Arnage ends up with a Chinese flag fluttering on the bonnet.

So getting back to FMG, IMO for several years iron ore and steel making will be booming, however recycling will over the next 20 years increase, as we do two things one get rid of ICE cars which is a lot of recycled steel and two move toward more and more renewable E.V's.

What I mean by that, I have mentioned before, as technology improves AI improves and autonomous driving vehicles improve, the need to make them out of high metal content decreases, because safety and structural strength becomes obsolete as accidents are avoided.

So all the current vehicles in the world become food for electric arc steel furnaces and the new vehicles wont require new steel to make them.
So the current demand for iron ore may decline, our good friend Twiggy over a couple of cans of W.A emu export, probably thought hey we need to diversify and as the evening moved on the plan became clearer.
With that, put me down for pre selection at the Ross River Resort, you can pick me up in the Arnage, if my good friend Marcus McGowan will allow me to travel.

 

[dat111]

Skate, or anyone, how does this work?



Why would keeping FFI within FMG be motivation for China not to look for better quality or cheaper IO elsewhere? Green credentials? Would that really be a commercial factor for China?

And this:



It's going to be years, perhaps a decade or more before any of these green projects get up and running. Changing their trucks and trains to run on ammonia is not financial upside really. And 'symbolic relationship', how does that generate cash?

The way it looks at the moment, FMG will have put about $1b into FFI shortly, and maybe up to $7b by the end of the decade, and massively increased their human resources expenditure without having any of their proposed projects anywhere near making a profit for a couple more decades.

Someone came out and said that purchasing the batteries alone would cost $8B... How much diesel fuel is $8B... Heck the total operating cost was reported as $15.28/wmt... If all of the operating cost was for batteries it would take 3 years worth of operating costs to purchase the batteries if FMG continued to produced 93.1 million wmt like the for 2022 First Half.... I have not looked at the income statement but I would think the cost of diesel/year is probably $100M at most... The money needs to be free from the government for this to even come close to having this make sense...

 

[divs4ever]

I'm out

not me , i am doubling down ( OK not ACTUALLY doubling more carefully accumulating in the dips )

BUT CAUTIOUSLY , these are grandiose plans , but Twiggy has come up with the goods before , and IMHO deserves a careful vote of support ( at least until he makes a major blunder )

 

[basilio]

SP falling to $18.69. And the overall market is still in free fall. Looks ugly all round. And not a shot has been fired..

 

[Value Collector]

Someone came out and said that purchasing the batteries alone would cost $8B... How much diesel fuel is $8B... Heck the total operating cost was reported as $15.28/wmt... If all of the operating cost was for batteries it would take 3 years worth of operating costs to purchase the batteries if FMG continued to produced 93.1 million wmt like the for 2022 First Half.... I have not looked at the income statement but I would think the cost of diesel/year is probably $100M at most... The money needs to be free from the government for this to even come close to having this make sense...

The total project is $9 Billion, that includes solar farms, wind turbines and batteries.

it will offset more than just diesel, it will also offset natural gas usage, and once the project is fully complete it will produce more than energy than FMG require to run their mines, which means they will have excess electricity to sell to other miners to offset their diesel and natural gas, or produce hydrogen etc.

there are already electric utility companies building wind, solar and batteries on the east coast that are economically producing energy for the national grid, the mining companies in the Pilbara have higher energy costs than the grid so the same investments that make sense for the east coast grid make even more sense for the Pilbara.

not to mention that the thing will be built in stages, and each stage will prove the viability of the next stage, they don’t have to commit all at once, in fact they have already built solar into their network that’s running now, I would suggest that they are seeing the benefits of this and that is why they are going big with it.

 

[UMike]

SP falling to $18.69. And the overall market is still in free fall. Looks ugly all round. And not a shot has been fired..

Got a low ball order at $18.5.

Not going higher but not cancelling it either.
Not that big on other people opinions but..........

 

[basilio]

Got a low ball order at $18.5.

Not going higher but not cancelling it either.
Not that big on other people opinions but..........
View attachment 138043

Fascinating isn't it ? All the big guys say sell. Valuations down to $11.70

I just don't get it. I'm not going to say this will be some huge money spinner (although it could well be ) but I would have thought the runs on the board, the strong cash flow with dividends and iron ore business alone were worth at least the current price let alone 20-40% discounts.

Anyway I'm comfortable with my investment. It might still fall temporarily with the current political situation but on balance IMV it's still good.

 

[divs4ever]

i d

Fascinating isn't it ? All the big guys say sell. Valuations down to $11.70

I just don't get it. I'm not going to say this will be some huge money spinner (although it could well be ) but I would have thought the runs on the board, the strong cash flow with dividends and iron ore business alone were worth at least the current price let alone 20-40% discounts.

Anyway I'm comfortable with my investment. It might still fall temporarily with the current political situation but on balance IMV it's still good.

i don't understand their figures either but got some more @ $18.45 today ( cum. dividend )

i remember when stuff like that happened to HVN like that ( thanks guys , it made accumulating cheaper )

the downside is short-term i will have to be careful deploying the cash reserves ( so not so many ex-div. buys )

 

[sptrawler]

i d

i don't understand their figures either but got some more @ $18.45 today ( cum. dividend )

i remember when stuff like that happened to HVN like that ( thanks guys , it made accumulating cheaper )

the downside is short-term i will have to be careful deploying the cash reserves ( so not so many ex-div. buys )

Maybe the market thinks we are long way from building battery operated tanks and helicopters, the money may well be moving to other resources, then FMG goes back to an iron ore play.
Well unless Vlad and Xi settle down, then we go back to kumbaya and all the green stuff and the run starts again.
Don't bet against the narrative IMO, I'm pleased my buy in was mid $14's and I wont be buying till it all settles down.
Having cash available, is definitely king ATM, there is nothing on the horizon that indicates blue sky IMO.
Just my opinion and I have been wrong often, hopefully this time as well.

 

[Value Collector]

Maybe the market thinks we are long way from building battery operated tanks and helicopters, the money may well be moving to other resources, then FMG goes back to an iron ore play.
Well unless Vlad and Xi settle down, then we go back to kumbaya and all the green stuff and the run starts again.
Don't bet against the narrative IMO, I'm pleased my buy in was mid $14's and I wont be buying till it all settles down.
Having cash available, is definitely king ATM, there is nothing on the horizon that indicates blue sky IMO.
Just my opinion and I have been wrong often, hopefully this time as well.

Did some one say blue skys?

Baby Groot listening to blue skys basically sums up my attitude to investing during all these turmoils.

 

[sptrawler]

Did some one say blue skys?

Baby Groot listening to blue skys basically sums up my attitude to investing during all these turmoils.

They were good movies.
Investing in these times are the same as investing at any time, carefully and by applying common sense.IMO

 

[divs4ever]

so far , i am buying FMG as an iron ore miner , now sure the other projects might be winners , but they are not earning ( or saving ) money yet .

 

[Value Collector]

Skate, or anyone, how does this work?



Why would keeping FFI within FMG be motivation for China not to look for better quality or cheaper IO elsewhere? Green credentials? Would that really be a commercial factor for China?

And this:



It's going to be years, perhaps a decade or more before any of these green projects get up and running. Changing their trucks and trains to run on ammonia is not financial upside really. And 'symbolic relationship', how does that generate cash?

The way it looks at the moment, FMG will have put about $1b into FFI shortly, and maybe up to $7b by the end of the decade, and massively increased their human resources expenditure without having any of their proposed projects anywhere near making a profit for a couple more decades.

I was thinking about what your concerns that these FFI long term projects won’t be generating cash for a long period, but will be requiring large cash outflows over their development period, and it got me thinking about other industries that have long routine periods to generate cash.

One that came to mind was the Timber industry, if you go down to Bunnings today, you will find plantation Timber that was planted in the year 2000, some one bought or leased land then planted a seed and then pruned and protected the tree for 20 years before they produced any cash flow.

They may have even spend money planting seed every year for twenty years, and now have 20 years of trees with a group maturing each year ready for harvest, they have a pipeline of trees.

Even trees like mango, almonds, oranges etc etc can take 7 years before producing their first decent fruit crops.

if you built a whisky distillery today it would take many years before the whisky you produced was aged and could be sold.

It took over decade for Tesla to become an overnight success and produce profits but still pays no dividend, but imagine getting in on the ground level you would be very wealthy even with just a modest investment.

So many investments that built and keep the economy running take many years from start to cashflow, it seems weird to me that as investors people are out off by that, to me that’s the very foundation of why investors exist, we are meant to be the class of people willing to make those capital allocations, that’s literally why we get paid the big bucks,

 

[basilio]

FMG went ex dividend today and, not surprisingly, the market dropped around 90c matching the 86c dividend.

Currently the SP price has recovered significantly. Be interesting to see where it ends up given the geo political turmoil.

 

[InsvestoBoy]

to me that’s the very foundation of why investors exist, we are meant to be the class of people willing to make those capital allocations, that’s literally why we get paid the big bucks,

I hear you VC and generally agree with your comments but let's face it, buying FMG shares on the secondary market has nothing to do with that. Fortescue doesn't get the dollar you spent on the shares, so this isn't exactly right.

Some other investor stumped up the bucks for the stuff in a primary share or bond offering, players in the secondary market are just evaluating the possibility of it succeeding at a certain price.

 

[basilio]

I hear you VC and generally agree with your comments but let's face it, buying FMG shares on the secondary market has nothing to do with that. Fortescue doesn't get the dollar you spent on the shares, so this isn't exactly right.

Some other investor stumped up the bucks for the stuff in a primary share or bond offering, players in the secondary market are just evaluating the possibility of it succeeding at a certain price.

I don't think it works like that at all Insevesto boy. When one invests in a company the one certainty you want is the capacity to realise your profits through selling the investment when/if it succeeds. A sharemarket or other sale mechanism is essential for that process.

Companies are always in evolution. Investors buy or sell into companies as they observe it's progress. FMG is at a critical junction where it intends to invest heavily in renewable energy to both reinforce it's current business and create a whole new operation. So current investors are evaluating these possibilities.

 

[Value Collector]

I hear you VC and generally agree with your comments but let's face it, buying FMG shares on the secondary market has nothing to do with that. Fortescue doesn't get the dollar you spent on the shares, so this isn't exactly right.

Some other investor stumped up the bucks for the stuff in a primary share or bond offering, players in the secondary market are just evaluating the possibility of it succeeding at a certain price.

When you buy a share in Fortescue, you are buying the equity of the business that was invested by the holders before you (both the initial capital and all the retained earnings over time) and become part owner in all the operating and growth projects.

Also, while you are holding it, the company is continually investing more retained earnings on your be half, that are accrued during your holding period, which my be decades.

———————————
for example, Fortescue doesn’t have to invest 30% of its earnings and only pay us 70% as a dividend like it did recently.

It could pay out 100% of earnings to us and Only spend sustaining capital to keep its mines going until they scratch bottom and then shut down the company.

but, they aren’t going to do that, they will keep retaining our earnings and reinvesting it, and all those new investments are funded by investors retained earnings.

 

[Value Collector]

I don't think it works like that at all Insevesto boy. When one invests in a company the one certainty you want is the capacity to realise your profits through selling the investment when/if it succeeds. A sharemarket or other sale mechanism is essential for that process.

Companies are always in evolution. Investors buy or sell into companies as they observe it's progress. FMG is at a critical junction where it intends to invest heavily in renewable energy to both reinforce it's current business and create a whole new operation. So current investors are evaluating these possibilities.

Yep, Fortescue raised its first funds from the initial investors in 2003, thats 19 years ago, now the majority of those investors have probably wanted to get their capital out by now.

If the share market wasn’t there to facilitate the sale of their ownership interest in the company to another person that wants to replace them, then the only of ways for them to get their money back would be

1, have FMG pay the investor back their initial investment and all the earnings with cash from their balance sheet, which would mean FMG would never have been able to grow as it has

2, sell the entire company to some one and pay out all existing share holders at once.

3, do as I said before, cancel all new projects and pay out 100% of earnings till the company’s mines are exhausted then shut up shop.

———————————

How ever luckily the share market does exist, and owners of the company can sell their parcels of ownership to new owners when ever they want,

which allows the company to keep share holders equity working in the business undisturbed and makes shareholders comfortable with having part of their earnings retained and reinvested in new projects each year.