FMG - Fortescue Ltd

[qldfrog]

And another one goes from FMG.
From Evil Murdoch press

There can't be any more c-suit perons there in FMG apart from Twiggy.
At what point do shareholders start asking the obvious question.
Why have so many left?
Mick

No no they got rich on ballistic SP.
Like Enron , no question asked ,ever, not any hard question on the green talk, or iron ore market future and Africa.
Twiggy has won a big gamble and in the same run, an enamoured following..a bit like Elon Musk once..
The honeymoon will end but the fact is no other corporation that size could play revolving doors like that without raising serious questions.
I do not hold at current price

 

[Sean K]

And another one goes from FMG.
From Evil Murdoch press

There can't be any more c-suit perons there in FMG apart from Twiggy.
At what point do shareholders start asking the obvious question.
Why have so many left?
Mick

They'll have to make a movie about this. Working Dog is probably on to it.

 

[Gunnerguy]

I hold a lot of FMG but for only 6-7 years. This cannot go on. Yes the iron ore stuff is good and the green stuff is blue sky. however I think I’ll probably take a break and sell tomorrow, miss the dividend, and maybe come back in in the future.

I’m doing some major adjustments to my portfolio due to fund requirements elsewhere and preservation age just around the corner.

It’s a pity but cash in hand over short term fluctuations in FMG maybe a reasonable idea at the moment.

Gunnerguy

 

[Value Collector]

And another one goes from FMG.
From Evil Murdoch press

There can't be any more c-suit perons there in FMG apart from Twiggy.
At what point do shareholders start asking the obvious question.
Why have so many left?
Mick

I think it’s just growing pains, when you hire people that fast trying to build a new company from scratch you are going to make mistakes and you are going to end up with some people that aren’t right, being able to cut the fat is a good trait.

There is a lot of work to do in the green energy side of the business, so it’s easy to hirer a lot of people, but if those people don’t turn out to be the Type you need, or the work is not quite right for them, they need to leave.

FMG didn’t make its way to where it is by keeping the wrong people around.

 

[Value Collector]

Start ups in general almost always have a high turn over of staff, some times as much as 50% per year. It‘s important to remember that at the moment FMG’s green energy business is basically a start up inside an established mining company.

FMG are growing the green energy business on the go, it’s evolving along the way and nobody really knows what the company or their jobs will look like as a startup grows. it’s easy for staff to end up not being the right fit, or even just not enjoying the job because it’s different to what it was at the start or what they imagined.

https://www.tice.news/know-this/startups-hiring-trend-retain-talents

 

[basilio]

From all accounts Twiggy is a ruthless taskmaster. He demands the impossible and, I gather, somehow that gets done - sometimes.

Fortescue green energy was always a toweringly ambitious project. I suspect many of the people who have left just wouldn't put up with what they saw as unrealistic and/or unreasonable demands. I don't think it is a good process either. Seems destructive of morale.

Anyway this is way beyond my pay grade. As a chastened shareholder I'm still rooting for an effective green energy transition. There are some elements that are well sorted (FMG de-carbonisation ) but what the final huge hydrogen dreams look like is still very much a work in progress.

 

[Value Collector]

From all accounts Twiggy is a ruthless taskmaster. He demands the impossible and, I gather, somehow that gets done - sometimes.

Fortescue green energy was always a toweringly ambitious project. I suspect many of the people who have left just wouldn't put up with what they saw as unrealistic and/or unreasonable demands. I don't think it is a good process either. Seems destructive of morale.

Anyway this is way beyond my pay grade. As a chastened shareholder I'm still rooting for an effective green energy transition. There are some elements that are well sorted (FMG de-carbonisation ) but what the final huge hydrogen dreams look like is still very much a work in progress.

For me it just comes down to one question.

eg. What will FMG look like in 5 years.

And, I think there is only really 2 likely answers.

1. It’s a wonderful Iron Ore business that’s managed to also bolt on a decent green energy business, and its earnings and dividends are growing strongly.

2. It’s a wonderful Iron Ore business, that tried to build a green energy business but failed, lost a portion of its retained earnings for 5 years, but is now back to being just a wonderful mining business.

some things are worth the punt.

Woolies lost a $3.2 Billion on trying to build Masters, and failed, but it was probably worth the shot, it didn’t pose a threat to its core business but may have ended up with Woolies taking a chunk out of Bunnings, but happens Some times you fail in business.

but as I said before it’s a free bet, you could buy BHP for 25% more, or you could buy FMG at a discount to BHP and get a free bet on an energy start up.

 

[sptrawler]

For me it just comes down to one question.

eg. What will FMG look like in 5 years.

And, I think there is only really 2 likely answers.

1. It’s a wonderful Iron Ore business that’s managed to also bolt on a decent green energy business, and its earnings and dividends are growing strongly.

2. It’s a wonderful Iron Ore business, that tried to build a green energy business but failed, lost a portion of its retained earnings for 5 years, but is now back to being just a wonderful mining business.

3. It's an iron ore business that is struggling to compete with a low cost African iron ore hub being sponsored by China, as nickel is currently with Indonesia, with a successful green energy business.

4. It's a struggling Iron Ore business, with a failed green energy business.

I prefer you scenarios but one never knows.

Time will tell as usual.

 

[Value Collector]

3. It's an iron ore business that is struggling to compete with a low cost African iron ore hub being sponsored by China, as nickel is currently with Indonesia, with a successful green energy business.

4. It's a struggling Iron Ore business, with a failed green energy business.

I prefer you scenarios but one never knows.

Time will tell as usual.

The Iron Ore price will fluctuate, but that doesn’t mean FMG aren’t a wonderful Iron Ore business, they are building their own African Mine right now by the way

 

[InsvestoBoy]

For me it just comes down to one question.

eg. What will FMG look like in 5 years.

And, I think there is only really 2 likely answers.

But those are the only two answers for you because you have baked in some implicit assumptions about the iron ore price that allow for the worst case to be wonderful, right?

Not that I'm saying it would happen but if the 5Y forward average price for iron is more like $70 than the $95 I think I previously remember you mentioning, how many more answers does it introduce to your question?

I just use $70 as an example here pulled from Fitch's midcycle forecast. I've seen other midcycle forecasts of $60 and from memory FMG also don't achieve the benchmark price due to lower grades anyway. I don't have a forecast, just raising it as a question about the assumptions embeeded in your 5Y outlook.

https://www.fitchratings.com/research/corporate-finance/fitch-ratings-increases-some-global-metals-mining-price-assumptions-11-12-2023

 

[Value Collector]

But those are the only two answers for you because you have baked in some implicit assumptions about the iron ore price that allow for the worst case to be wonderful, right?

Not that I'm saying it would happen but if the 5Y forward average price for iron is more like $70 than the $95 I think I previously remember you mentioning, how many more answers does it introduce to your question?

I just use $70 as an example here pulled from Fitch's midcycle forecast. I've seen other midcycle forecasts of $60 and from memory FMG also don't achieve the benchmark price due to lower grades anyway. I don't have a forecast, just raising it as a question about the assumptions embeeded in your 5Y outlook.

View attachment 169999

https://www.fitchratings.com/research/corporate-finance/fitch-ratings-increases-some-global-metals-mining-price-assumptions-11-12-2023

I haven’t baked in any Iron Ore price into those two outcomes, A wonderful Iron Ore company in my opinion is one that produces large amounts of Iron Ore at low cost, and can do so indefinitely, due to huge resources.

what the iron ore price will be and therefore what their profit margins are will fluctuate over time, and I guess each investor has to make those estimates themselves.

but basically my point is that whether the green energy business succeeds or doesn’t isn’t a life or death thing for FMG.

————————————
but if you take a look back at the posts I made in 2015 and 2016, I had marathon discussions on the topic of Iron Ore price, I am not that interested in rehashing it again.

 

[basilio]

In the next few years FMG will shave another few dollars per ton off their COP on iron ore. This will happen as they progressively reduce their fossil fuel costs across the mining, handling and transportation of the ore. I believe they will still be turning a profit way before most of their competitors have to stop production.

They have minimal capital debt. Any new mine will have the massive start up costs to amortize .

Having said that if Gunnnerguy sold out early on Friday he has done well - in the short term anyway.

 

[InsvestoBoy]

Here's an interesting one:

I was working on an economic composite index and noticed that Iron Ore isn't included in any of the industrial metal indices like S&P GSCI Industrial Metals, Bloomberg Industrial Metals or even LME Index.

So I was poking around on TradingView for the iron ore futures price to see how different it is compared to LME Index etc.

Here's the 62% future that trades on SGX, this is one of the two physically settled official futures (the other one is Dalian) since it listed

what this doesn't show is the effect of backwardation on Iron Ore futures since the Vale/BHP Samarco dam disaster in Brazil.

BHP and Vale ordered to pay $15bn in damages for 2015 Brazil dam collapse

Mining companies and their joint venture Samarco ordered by Brazilian judge to pay AU$14.7bn over disaster that killed 19 people

www.theguardian.com

Check out the TIO futures on COMEX which TradingView supports back-adjusting for backwardation/contango from mid 2015 (the unadjusted chart looks identical to the SGX one above):

Basically even though iron ore is trading $127, there's an additional $140 of roll yield captured for anyone who's been holding/rolling futures since then (or significant economic profits for anyone operating an iron ore business).

 

[qldfrog]

This is critical if FMG wants to sell overpriced green BS IO
https://www.ft.com/content/f255f767-187e-4516-af05-3c6e507c5c07

 

[basilio]

FMG seems to be in free fall today ahead of their Financial report. I wonder if there is some bad news that has leaked out.

Currently dropped $1.29/4.57%

 

[Value Collector]

FMG seems to be in free fall today ahead of their Financial report. I wonder if there is some bad news that has leaked out.

Currently dropped $1.29/4.57%

Iron Ore price slipped quite a bit over night, it's probably just related to that, BHP and Rio are down pretty heavily too, and then were down more than FMG in previous days, so FMG is probably just playing catch up today.

 

[dat111]

I wonder if the dividend payout strategy is being lowered.

 

[sptrawler]

Maybe just a global re adjustment on reality.
A bit of euphoria deflation?

 

[Value Collector]

I wonder if the dividend payout strategy is being lowered.

I guess we will find out, but their policy is 50% - 80% pay out, I can’t see them having to lower the pay out to below 50%.

but, anything is possible, we will find out in 3 hours.

 

[basilio]

FMG release the Half Year reports. As long as iron ore holds up FMG will continue to offer excellent returns

Strong financial results underpin an interim dividend of A$1.08 per share
Highlights
• Safety is Fortescue’s highest priority, and the team achieved a Total Recordable Injury Frequency Rate (TRIFR) of 1.8 for the 12 months to 31 December 2023.

• Iron ore shipments of 94.6 million tonnes (Mt) for the half year ended 31 December 2023 (H1 FY24) were the second highest first half shipments in the Company’s history.

•Underlying EBITDA of US$5.9 billion was 36 per cent higher than H1 FY23, with an increased Underlying EBITDA margin of 62 per cent.

•Net profit after tax (NPAT) of US$3.3 billion and earnings per share (EPS) of US$1.08 increased 41 per cent from the prior corresponding period.

•Net cash flow from operating activities of US$4.2 billion and free cash flow of US$2.7 billion after capital expenditure and investments of US$1.5 billion.

•Fully franked interim dividend declared of A$1.08 per share is 44 per cent higher than the FY23 interim dividend and represents a payout of 65 per cent of H1 FY24 NPAT.

•Net debt of US$0.6 billion at 31 December 2023, inclusive of cash balance of US$4.7 billion.

•Iron Bridge achieved its first shipment of high grade magnetite concentrate in September 2023.

• Announced a Final Investment Decision on the Phoenix Hydrogen Hub, USA, the Gladstone PEM50 Project, Australia, and a Green Iron Trial Commercial Plant in the Pilbara, Australia.

•Launched Fortescue Capital, a green energy investment accelerator platform, headquartered in New York City.

•Continued progress on decarbonisation, including the deployment of the first battery electric haul truck and Australia's first operational electric excavator in the Pilbara.

• Guidance for FY24 shipments, C1 cost and capital expenditure is unchanged.

FY24 Half Year Results Announcement (PDF 375.8 KB)