FMG - Fortescue Ltd

Value Hunter said:

I agree that is why I said "$70 per tonne over the cycle". Sure $70 could happen but I don't think it would stay there for long as too much iron ore production in the world would shut down at that price.

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And not just Iron Ore production shutting down, scrap metal collection is hugely affected , the distance you can truck and ship scrap metal is reduced.

Also I think Morningstar downplays Fortescue vs BHP and RIO because if you are comparing the iron ore assets then yes BHP and RIO have more profitable (lower cost) Iron Ore mines, however as an overall business Fortescue is earning a higher return on equity than either BHP or RIO for two reasons. I think Morningstar doesn't reasonably take this into account.

One reason is that many of the non iron ore assets in BHP and RIO are earning low returns on capital and reason two BHP and RIO do a lot of dumb acquisitions paying huge and unreasonable premiums (underscored by the number of writedowns over the past 30 years) to book value for the acquisitons which lowers the return on equity. Also in the past BHP made a number of share buybacks at inflated prices and failed to buy back shares when the share price was depressed. This is not uncommon amongst companies because companies tend to buy back shares when they are producing a lot of earnings (and excess cash flow) which often coincides with a high/rising share price. Then when when earnings fall and the share price is depressed they do not buy back shares becasue they do not have the cash flow or balance sheet capacity to do so. A well managed company manages its balance sheet in a conservative manner so they are ready to pull the trigger during the downturn.

The reason for the dumb acquisitions is simple as is the case with most large corporations run by professional management (as opposed to owner operators). Its okay to overpay when you are using shareholders money and not your own as its the shareholders who suffer the losses.

Look at owner operated comapnies such Mineral Resources, Fortescue Metals or Blackmores before it was taken over or Reece or ARB corporation, etc. Owner operator run companies rarely make dumb overpriced acquisitions (it still happens occasionally though because veerybody is human and makes mistakes) because if they do their own wealth gets flushed down the toilet unlike a professional CEO who collects his salary and at most foregoes unvested stock options before moving onto the next job, hence they are taking no real risk.

I believe the concern about the iron ore price holding is the upcoming production from the giant Chinese controlled mine in Africa.

The collapse of the Nickel price happened when China financed a very large Indonesian expansion in Nickel. The concern is that China could very well start selling Simandou ore at cost of production. If this resulted in iron ore prices falling the country would make enormous savings by not financing the current massive profits to FMH/RIO/BHP.

Forbes
Asia

Profit Collapse Looms For BHP, Rio Tinto And Fortescue​

Tim Treadgold
Contributor


Feb 26, 2024,08:43pm EST

The crash in prices for nickel and lithium, two key battery metals, could be a precursor to something more significant, a collapse in the price of iron ore, which underpins the profits of some of the world’s biggest mining companies.


Predictions of a steep fall in the iron ore price have been routine over the past two years, primarily because of concern about declining demand from China, the world’s biggest consumer of the commodity, which is used to make steel.




BHP's Port Hedland Iron Ore processing plant.

Fairfax Media via Getty Images
But the new worry is that an iron ore glut is likely to flood the market from next year as the giant Simandou mine in Africa starts exporting, delivering the same sort of supply shock that Indonesia’s booming exports have done to the nickel price.

According to a recent research note from a well-connected Australian fund manager, the increase in iron ore supply could potentially knock $50 a tonne off the price, driving it down to around $80/t.

If correct, the analysis of Yarra Capital could trigger a 49% fall in the earnings of BHP and Rio Tinto and a 65% fall in the earnings of Fortescue.

.... Hershan said that despite the malaise in China, iron ore supply is set to surge in 2025 when Simandou, a Chinese controlled project, starts exporting.

Without supply cuts elsewhere, the iron ore market could be pushed into an annual surplus of 5% to 10%.

Carnage Coming?​

“As with nickel, China has an incentive to over-invest in iron ore, flood the market and drive down the price for one of its largest imports,” Hershan said.

“Logic would suggest this could result in a $50/t drop in the iron ore price to around $80/t in line with the cost curve which would slash earnings at BHP, Rio Tinto and Fortescue.

First of the big bucks n Green Energy projects. Of course they now have to start producing some green Hydrof=gen don't they ?

Fortescue officially opens Gladstone Electrolyser Facility​

8 April 2024

Fortescue has today officially opened its world-leading electrolyser manufacturing facility in Gladstone, Queensland, Australia – one of the first globally to house an automated assembly line.

Fortescue has today officially opened its world-leading electrolyser manufacturing facility in Gladstone, Queensland, Australia – one of the first globally to house an automated assembly line
The 15,000sqm advanced manufacturing facility, constructed and fully commissioned in just over 2 years, will have capacity to produce over 2GW of Proton Exchange Membrane (PEM) electrolyser stacks annually

Fortescue Executive Chair and Founder Dr Andrew Forrest AO said Fortescue was proud to be a first move

“We are grateful for the Queensland and Federal Government’s vision and early support to help get us started”, Dr Forrest said.
“Together we have laid the cornerstone for what will be a massive new manufacturing industry in Australia creating the potential for thousands of new green energy jobs.”

Fortescue Energy CEO Mark Hutchinson said the Gladstone facility, which produces electrolysers designed in-house by Fortescue teams in Australia and the United States, establishes the company as an Original Equipment Manufacturer (OEM).

“The process of splitting hydrogen and oxygen isn’t new – but the innovative ways the world is looking to use green hydrogen to decarbonise are, and that means demand for green hydrogen and for the electrolysers to produce it is growing rapidly,” Mr Hutchinson said.

basilio said:

I believe the concern about the iron ore price holding is the upcoming production from the giant Chinese controlled mine in Africa.

The collapse of the Nickel price happened when China financed a very large Indonesian expansion in Nickel. The concern is that China could very well start selling Simandou ore at cost of production. If this resulted in iron ore prices falling the country would make enormous savings by not financing the current massive profits to FMH/RIO/BHP.

Forbes
Asia

Profit Collapse Looms For BHP, Rio Tinto And Fortescue​

Tim Treadgold
Contributor


Feb 26, 2024,08:43pm EST

The crash in prices for nickel and lithium, two key battery metals, could be a precursor to something more significant, a collapse in the price of iron ore, which underpins the profits of some of the world’s biggest mining companies.


Predictions of a steep fall in the iron ore price have been routine over the past two years, primarily because of concern about declining demand from China, the world’s biggest consumer of the commodity, which is used to make steel.



View attachment 174303
BHP's Port Hedland Iron Ore processing plant.

Fairfax Media via Getty Images
But the new worry is that an iron ore glut is likely to flood the market from next year as the giant Simandou mine in Africa starts exporting, delivering the same sort of supply shock that Indonesia’s booming exports have done to the nickel price.

According to a recent research note from a well-connected Australian fund manager, the increase in iron ore supply could potentially knock $50 a tonne off the price, driving it down to around $80/t.

If correct, the analysis of Yarra Capital could trigger a 49% fall in the earnings of BHP and Rio Tinto and a 65% fall in the earnings of Fortescue.

.... Hershan said that despite the malaise in China, iron ore supply is set to surge in 2025 when Simandou, a Chinese controlled project, starts exporting.

Without supply cuts elsewhere, the iron ore market could be pushed into an annual surplus of 5% to 10%.

Carnage Coming?​

“As with nickel, China has an incentive to over-invest in iron ore, flood the market and drive down the price for one of its largest imports,” Hershan said.

“Logic would suggest this could result in a $50/t drop in the iron ore price to around $80/t in line with the cost curve which would slash earnings at BHP, Rio Tinto and Fortescue.

Profit Collapse Looms For BHP, Rio Tinto And Fortescue

The crash in prices for nickel and lithium, two key battery metals, could be a precursor to a collapse in the price of iron ore.

www.forbes.com

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The Simandou mine is partly owned and operated by RIO, I am sure they don’t want to be selling the ore at cost price, and the Chinese company that is involved has borrowed $1.4 Billion for their part, so then need to make atleast the interest rate, and they have shareholders themselves.

Value Collector said:

The Simandou mine is partly owned and operated by RIO, I am sure they don’t want to be selling the ore at cost price, and the Chinese company that is involved has borrowed $1.4 Billion for their part, so then need to make atleast the interest rate, and they have shareholders themselves.

Click to expand...

It won't be a reliable source, it's one of the most unstable places in the world and they'll also have problems getting it out of there.

TimeISmoney said:

It won't be a reliable source, it's one of the most unstable countries in the world and they'll also have problems getting it out of there.

Click to expand...

I hope it’s reliable, but it won’t be easy. Africa has so much potential, I welcome any competition they bring in Iron Ore, because as they develop their economy and grow it will be good for them and good for us.

what a beat-up.



Global demand - about a billion tonnes a year .

Dona Ferentes said:

what a beat-up.

View attachment 174308

Global demand - about a billion tonnes a year .

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Yeah it is a bit of a beat up, if all goes to plan by the end of 2027 they will be producing 60 Million tonnes per year. First production is hoped to be 2025, but the ramp Up to 60 Mil is 30 months.

Just to confirm you do know that the 2 Billion Tonnes figure for simandou is how much they estimate they have in the ground, and not how much they will be digging up each year. (I just wanted to check because I wasn’t sure what you meant by your reference to demand being 1 billion tonnes, global iron ore usage is actually closer to 2 Billion tonnes per year though)

Value Collector said:

I hope it’s reliable, but it won’t be easy. Africa has so much potential, I welcome any competition they bring in Iron Ore, because as they develop their economy and grow it will be good for them and good for us.

Click to expand...

With a corrupt govt and tribal warfare, the chances are very slim. China has already had a good whipping over there by trying to advantage of the locals.

TimeISmoney said:

With a corrupt govt and tribal warfare, the chances are very slim. China has already had a good whipping over there by trying to advantage of the locals.

Click to expand...

it is getting better all the time.

basilio said:

First of the big bucks n Green Energy projects. Of course they now have to start producing some green Hydrof=gen don't they ?

Fortescue officially opens Gladstone Electrolyser Facility​

View attachment 174305

8 April 2024

Fortescue has today officially opened its world-leading electrolyser manufacturing facility in Gladstone, Queensland, Australia – one of the first globally to house an automated assembly line.

Fortescue has today officially opened its world-leading electrolyser manufacturing facility in Gladstone, Queensland, Australia – one of the first globally to house an automated assembly line
The 15,000sqm advanced manufacturing facility, constructed and fully commissioned in just over 2 years, will have capacity to produce over 2GW of Proton Exchange Membrane (PEM) electrolyser stacks annually

Fortescue Executive Chair and Founder Dr Andrew Forrest AO said Fortescue was proud to be a first move

“We are grateful for the Queensland and Federal Government’s vision and early support to help get us started”, Dr Forrest said.
“Together we have laid the cornerstone for what will be a massive new manufacturing industry in Australia creating the potential for thousands of new green energy jobs.”

Fortescue Energy CEO Mark Hutchinson said the Gladstone facility, which produces electrolysers designed in-house by Fortescue teams in Australia and the United States, establishes the company as an Original Equipment Manufacturer (OEM).

“The process of splitting hydrogen and oxygen isn’t new – but the innovative ways the world is looking to use green hydrogen to decarbonise are, and that means demand for green hydrogen and for the electrolysers to produce it is growing rapidly,” Mr Hutchinson said.

Fortescue officially opens Gladstone Electrolyser Facility

Fortescue has today officially opened its world-leading electrolyser manufacturing facility in Gladstone, Queensland, Australia – one of the first globally to house an automated assembly line.

fortescue.com

Click to expand...

This factory is going to be producing the electrolysers we need to build the hydrogen producing plants, FMG also is planning to sell them to others.

listen to what this woman says at the 1.15 min mark.

Value Collector said:

The Simandou mine is partly owned and operated by RIO, I am sure they don’t want to be selling the ore at cost price, and the Chinese company that is involved has borrowed $1.4 Billion for their part, so then need to make atleast the interest rate, and they have shareholders themselves.

Click to expand...

Chinese part ownership hasn't helped with lithium joint ownerships, China plays the long game, lose a few years of production then pick up the stranded assett has worked for plenty in the past.

sptrawler said:

Chinese part ownership hasn't helped with lithium joint ownerships, China plays the long game, lose a few years of production then pick up the stranded assett has worked for plenty in the past.

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It's looking like China will be out of the game sooner or later. They have an aging working population that's declining, they've burnt many bridges with copyright infringements and India is keen to replace them with an inclining younger working population and it's also slightly bigger.

Value Collector said:

it is getting better all the time.

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One can only hope but corruption and pirates are probably at their height these days.

TimeISmoney said:

One can only hope but corruption and pirates are probably at their height these days.

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Actually it’s been decreasing since 2011.

But I think you read read or listen to an audio book call “Factfulness” by Hans Rosling.

It’s very hard to read that book and not come away from it with an optimistic view of the future, I think its a must read for all investors, because a lot of investors tend to be very cynical and pessimistic, and they often believe that’s helpful, but it’s much better to be more optimistic based on facts, than pessimistic based on cynicism and warped media

TimeISmoney said:

It's looking like China will be out of the game sooner or later. They have an aging working population that's declining, they've burnt many bridges with copyright infringements and India is keen to replace them with an inclining younger working population and it's also slightly bigger.

Click to expand...

China has a population of 1.4 Billion which is 4 times more than the USA, even if their population began steadily shrinking, there is still going to be a huge population in china for the foreseeable future, probably centuries, that will want to continue forming households and raising their standard of living.

And with robotics and AI, who knows if total population numbers even matters In the future.

Another announcement/agreement by FMG on a green hydrogen and ammonia hub.

Fortescue signs agreement for massive green hydrogen and ammonia hub in Morocco​

Image: OCP.

Giles Parkinson
Apr 9, 2024
0



Hydrogen Renewables

Andrew Forrest’s iron ore and green energy giant Fortescue Metals has announced a “landmark” joint venture to create a massive renewable energy, and green hydrogen, ammonia and manufacturing hub in the north Africa country of Morocco.

The joint venture has been signed with Morocco-based OCP Group, a phosphate company with $US9 billion in revenue and which plans to spend $US13 billion over the coming three years to reach 100 per cent renewable energy by 2027, on the way to “carbon neutrality” by 2040.

The two companies are looking to supply green hydrogen, ammonia and fertilisers to Morocco and Europe, and other international markets. It includes the potential to establish manufacturing facilities in Morocco.

There was no immediate indication of the scale of the projects,

“Together, we will be a key originator and green corridor into Europe and to and from the Atlantic basin,” Forrest said in a statement after attending the signing ceremony in Morocco.

“Morocco will be a major player in the global energy transition given it is home to some of the world’s most prospective wind and solar resources, two large coastlines, and is in close proximity to Europe and the Americas.”

Fortescue signs agreement for massive green hydrogen and ammonia hub in Morocco

Fortescue announces “landmark” joint venture to create a massive renewable energy, and green hydrogen, ammonia and manufacturing hub in Morocco.

reneweconomy.com.au

Quarterly Report came out this morning. A bit sick and sorry in terms of ore output. There was major rail derailment and flooding which dropped output for the Jan 24 quarter. FMG was at pains to say that March 24 was booming month and that full year production guidance remains unchanged.( A very big figure for March shipments.) However the expect the final figure will be at the lower end of the guidance.

They also did some slash and burn on other production costs (to tidy up the bottom line )

FORTESCUE | MARCH 2024 QUARTERLY PRODUCTION REPORT Page 1 of 4

Operational recovery plan delivers turnaround
Summary
• Total Recordable Injury Frequency Rate (TRIFR) for Metals of 1.5 at 31 March 2024, a 17 per cent improvement from 31 December 2023.

• Iron ore shipments of 43.3 million tonnes (Mt) in Q3 FY24 were six per cent lower than Q3 FY23 reflecting the impact of the ore car derailment on 30 December 2023 and weather disruptions.

•Shipments recovered during the quarter, with a record month for shipments of 18.7Mt achieved in March 2024.

•Pilbara Hematite C1 cost of US$18.93/wet metric tonne (wmt) was seven per cent higher than Q2 FY24, impacted by lower sales volumes.

•Pilbara Hematite average revenue of US$104/dry metric tonne (dmt) for the quarter, realising 85 per cent of the average Platts 62% CFR Index. Revenue realisation was affected by the timing of sales during the quarter, with contractual realisation of 90 per cent.

•Iron Bridge Concentrate revenue of US$145/dmt for the quarter was 107 per cent of the average Platts 65% CFR Index.

•Cash balance of US$4.1 billion and net debt of US$1.2 billion at 31 March 2024, after payment of the interim dividend of US$2.2 billion and capital expenditure of US$589 million in the quarter.

•Successfully conducted the world's first use of ammonia as a marine fuel onboard the Singapore-flagged ammonia-powered vessel, the Fortescue Green Pioneer.

•In April 2024, announced a joint venture with OCP Group, the world leader in plant nutrition solutions and phosphate-based fertilisers, which aims to supply green hydrogen, ammonia and fertilisers to Morocco and international markets.

•In April 2024, officially opened the Gladstone Electrolyser Facility in Queensland Australia, with manufacturing capacity of over 2GW per annum.

•Guidance for FY24 total shipments is unchanged at 192 - 197Mt, with shipments now expected in the lower end of the range due to the derailment and weather impacts during Q3 FY24. This is inclusive of approximately 2Mt from Iron Bridge (100 per cent basis, previously 2 - 4Mt).

•Guidance for FY24 Pilbara Hematite C1 cost is unchanged, and guidance for Metals capital expenditure is amended to US$2.5 - US$2.7 billion (previously US$2.8 - US$3.2 billion).

• Guidance for FY24 Fortescue Energy net operating expenditure reduced by US$100 million to US$700 million, reflecting cost saving initiatives.

Fortescue Metals Chief Executive Officer, Dino Otranto said “The Fortescue team pulled together to successfully implement our recovery plan, and we had a record month for shipments in March of 18.7Mt contributing to 43.3Mt for the quarter. We also set a new record for railed tonnes, all while continuing to improve our safety performance.

Still om track with the H2 plan, just not in Australia.