FMG - Fortescue Ltd

[gav]

they were up over 5% (over the $8 mark for the first time in nearly a month), and I had a buy order in this morning for 7.50 but it only got down to 7.51

but they have pulled back since, about they same price they closed on Friday

 

[agro]

Fortescue raising reveals Andrew Forrest's support

OTHER than May's headline-grabbing debut shipment of Cloud Break iron ore, nothing underscores the maturation of Fortescue Metals Group more resoundingly than the apparently competitive terms of its planned preference share issue.

For a third time since 2006, Fortescue has gone looking for cornerstone capital to secure its ambitious expansion plans.

What makes the latest campaign for a $175 million preference issue unique in Fortescue's five-year history is that the New Force in Iron Ore seems to have locked in its money at potentially commercial terms.

The preference issue is part of a $450 million raising, the bulk of which is in the form of pre-payments by Chinese steel makers, who will have to put up cash up-front to lock in a share of Fortescue's planned expansion output.

Crucially, Fortescue has already secured a precommitment from just one investor -- believed to be an existing shareholder -- for up to 80 per cent of a preference share issue, which is planned to carry a coupon rate of just 9 per cent.

Now, to put that into some sort of context, that means Fortescue will raise relatively long, highly strategic money at a premium of just 1.8 per cent over the current interbank swap rate of about 7.2 per cent.

Again, some context. Fortescue has won serious pre-issue support on a coupon only 100 basis points higher than Suncorp's most recent raising. And for the insurer -- given Suncorp can fully frank its dividend stream -- its investors are getting nearer 11 per cent.

Now, clearly, we have to wait until we see an issue price before making a final call on the cost of capital here. But, all things being equal, this has the making of a keenly commercial outcome for Fortescue.

To get some idea how far Fortescue has come in just two years recall, if you dare, the terms of the cornerstone equity that secured the company's life-giving $3.2 billion raising in August 2006.

The central player in that deal was US value investor Leucadia National Corporation.

Forrest needed new equity to get a set of bond and debt issues away. Leucadia came to the party. And didn't it get value!

The US fund spent $300 million buying a 9.99 per cent stake in Fortescue and the provided an additional $100 million through a subordinated loan note. Without that injection, Fortescue may well have failed. But the cost of life was very high indeed.

After accounting for Fortescue's subsequent 10-for-1 share split, Leucadia paid the equivalent of just $1.13 a share for its new stake. Fortescue closed at $7.63 last night. Which looks great by every standard but for the servicing terms of Leucadia's bond note.

The bond, which is repayable after 13 years, carries a coupon that is based on Fortescue's total iron ore sales. The effect of the deal is that Leucadia gets 4 per cent of all of Fortescue's post-government royalty income from iron-ore sales. To understand what that means, consider that Fortescue is expected to sell maybe $2.5 billion in iron ore in 2009 and more than $5 billion the following year.

Now, get the calculator out, divide each of those revenue expectations by 100 and then multiply that number by four and then, if you are Leucadia, pat yourself warmly on the back. Because, if all goes to Fortescue's current plan, it will make its bond money back early in year two, and nearly triple its money well inside year three.

Little wonder Forrest's people like the look of the preference share market space and tell us they intend to visit it a fair bit over the coming years. To that end, Fortescue is going to ask shareholders to approve much more than just a preference capital raising when they gather in Perth's Park Hyatt, September 30. The constitutional reform Fortescue is proposing would deliver the board the capacity to issue preference shares and redeemable preference shares without further need to again to seek specific shareholder approval.

Preference capital and other varieties of non-voting equity tools are attractive to companies like Fortescue, which is famously controlled by chairman and founding force of nature, Andrew Forrest. He controls 36 per cent of Fortescue's voting capital and he wants it to stay that way. In this, Forrest is no different to News Corporation's chairman, Rupert Murdoch.

The effect of preference capital is that finance is raised in the form of equity which can then be used to secure more debt. But because preference shares tend to carry tightly defined and limited voting rights, the balance of shareholder power is effectively not altered.

The pay-off for the preference stock owners is that their paper comes with income certainty and priority over all other shareholders in any wind-up.

Incidentally, Fortescue yesterday played down reports that Harbinger Capital was the applicant for the $140 million chunk of the preferences.

That said, the company did not rule out the idea that an existing shareholder had come back to the iron ore well for preference capital could, under some conditions, mutate into ordinary shares.

While we are on matters Fortescue, rumours continue to swirl about its production performance since first shipment in May.

There have been stories, for example, that two Australian engineering firms have been bought in to deal with structural fractures in its rail wagons and, more recently, that the innovative surface mining fleet was at a standstill after two accidents at one of the five Cloud Break pits.

Both stories have been vigorously denied by Fortescue though a company spokesman agreed yesterday that one of the surface miners had tipped over because of a problem in its stabilising mechanics.

Meanwhile, those who (like me) have been waiting patiently for a Fortescue profit announcement can forget it. While Fortescue claims very accurately to be the new productive force of Australian iron ore, under ASX listing rules it remains an explorer until it has generated revenue for two consecutive quarters. Which means the company can continue on its cash-flow-based quarterly reporting cycle until February next year.

Fegan adds to pool

WHILE we are talking funding costs, let's ponder St George Bank's decision to add another $1.051 billion to its 2009 funding pool.

St George boss Paul Fegan says the pricing of the RMBS issue is "competitive with comparable sources of funding to Australian banks".

Fegan has now locked up 40 per cent of the bank's requirements for next year, which translates to $4.6 billion of the more than $11 billion the bank is expects to raise.

Which would be a fair enough achievement except that St George is an A rated bank while its prospective partner in an $18 billion merger, Westpac, is AA rated. And that means, quite simply, Westpac can expect to raise term funding more cheaply that St George. And we are talking a more than 10 basis points difference here.

Now clearly Fegan needs to keep running his bank as a stand alone entity here. No argument there. But it is clearly beginning to irk his future partners that the funding book has been filled aggressively and early.

Perhaps that is why, to the muted relief of Westpac, Fegan indicated yesterday that St George has, for the time being, ended it search for '09 funding.

http://www.theaustralian.news.com.au/story/0,25197,24278241-5001641,00.html

 

[agro]

announcement made just then.

Fortescue Shares the Subject of Stock Loans
Fortescue Metals Group (“ASX:FMG” “Fortescue”) wishes to advise that it has
been made aware that some 10% of the company’s shares have been the
subject of stock loans.
The stock loans were made by the owner’s custodian and the owner has since
advised the company that it will immediately rectify the situation.

price rocketed after that

 

[agro]

announcement made just then.

Fortescue Shares the Subject of Stock Loans
Fortescue Metals Group (“ASX:FMG” “Fortescue”) wishes to advise that it has
been made aware that some 10% of the company’s shares have been the
subject of stock loans.
The stock loans were made by the owner’s custodian and the owner has since
advised the company that it will immediately rectify the situation.

price rocketed after that

this is IMHO major major news!!! the US hedge funds who shorted fmg will need to return the shares, they have been caught with their pants down and now will be shafted so to speak by other hedge fund players, the hunters now become the hunted and they deserve it.

 

[Nesa]

this is IMHO major major news!!! the US hedge funds who shorted fmg will need to return the shares, they have been caught with their pants down and now will be shafted so to speak by other hedge fund players, the hunters now become the hunted and they deserve it.

I understand short selling etc, but struggling to see the correlation between them "returning" the shares and the price going up?

How has FMG or whoever involved done this?

 

[agro]

I understand short selling etc, but struggling to see the correlation between them "returning" the shares and the price going up?

How has FMG or whoever involved done this?

they have loaned that many according to the announcement, but we still dont know just how many have been shorted. one could guess its a lot more than has been quoted on the asx web site?
the true owners of the stock have asked for the stock back, which means that any shorts have to cover and return the stock to its real owners. This in theory puts upwards buying pressure on the stock and hence the initial bounce. if the asx has allowed that many shares to slip under the radar, then its nothing short of a total uninformed market.

an undisclosed shorts are killing the market and it does not respresent a level playing field.

 

[Prospector]

I thought the announcement meant that some of the major players in FMG had the stock as part of a loan deal (such as the case in MFS and ABC) which caused the price to fall when the shares had to be sold.

 

[agro]

I thought the announcement meant that some of the major players in FMG had the stock as part of a loan deal (such as the case in MFS and ABC) which caused the price to fall when the shares had to be sold.

there have been numerous reports where the custodian/nominee has been lending shares without the owners knowledge and the asx/asic has been asked to investigate this was reported in the papers only in the last few weeks.

it looks to have legal implications imo. This sort of thing is subject to major class action in the US at the moment. Hope the same lawyers come over here.

 

[blogs]

After analysing it I thought it was pretty straight forward-FMG 'have been made aware that 10% of the companies stock has been the subject of stock loans' and that the 'situation will be imediatley retified' meaning the stock that has been lent out will be called back in. Hence all teh hedge funds that have shorted the bejezus outa FMG will have to cover their shorts.

The bit Im trying to get my head around is 10% is around 280 million shares?? Thats a heap of buying pressure!! Expect a HUGE day or 10 coming up!?

 

[agro]

After analysing it I thought it was pretty straight forward-FMG 'have been made aware that 10% of the companies stock has been the subject of stock loans' and that the 'situation will be imediatley retified' meaning the stock that has been lent out will be called back in. Hence all teh hedge funds that have shorted the bejezus outa FMG will have to cover their shorts.

The bit Im trying to get my head around is 10% is around 280 million shares?? Thats a heap of buying pressure!! Expect a HUGE day or 10 coming up!?

that's what i beleive too,

for it to drop 50% was not justified (e.g. from $13-$7!!), maybe $10 if you were to factor in the recent turmoils but half price?!

so yes, i think a quick retrace to $10 is quiet well on the cards imo

my opinion only

edit - as soon as they released the announcement the price spiked but that was a few minutes to closing bell.. sell side volume decreased significantly too

 

[gav]

they have loaned that many according to the announcement, but we still dont know just how many have been shorted. one could guess its a lot more than has been quoted on the asx web site?
the true owners of the stock have asked for the stock back, which means that any shorts have to cover and return the stock to its real owners. This in theory puts upwards buying pressure on the stock and hence the initial bounce. if the asx has allowed that many shares to slip under the radar, then its nothing short of a total uninformed market.

an undisclosed shorts are killing the market and it does not respresent a level playing field.

thank-you for spelling it out, makes it easier for a dumb meathead like myself to understand!

will be watching the price closely tomorrow, who knows - may even pick up a few more...

 

[Go Nuke]

Some guy was just on CNBC 's Closing Bell giving FMG a real plug as one of his biggest stocks and a great time to buy.
No doubt some in the US WILL google FMG and contact thier broker.
Could be an interesting day with the DOW down,metals down but bullish signs with FMG

 

[agro]

Some guy was just on CNBC 's Closing Bell giving FMG a real plug as one of his biggest stocks and a great time to buy.
No doubt some in the US WILL google FMG and contact thier broker.
Could be an interesting day with the DOW down,metals down but bullish signs with FMG

i also herd that they are going to have to cover their loan on late line business (marcus padley) last night

 

[blogs]

Anyone got a slant on todays action? Strange to be down, thought it would have opened strong?.....................

 

[stock_dexter]

Any mention of "shorting" can still put shivers up investors spines...whether it's a move to stop it or not. Also, the price jump towards the end of yesterday's session may be "correcting".

 

[Nesa]

Billionaire investor linked to Fortescue short selling
3rd September 2008, 7:30 WST

Fortescue Metals Group boss Andrew Forrest in Perth. Picture: Nic Ellis.

Billionaire New York investor Phil Falcone has inadvertently triggered a wave of short selling in Fortescue Metals Group after the custodian looking after some of his 15.6 per cent stake in the $22.3 billion iron ore miner lent the stock to other hedge funds.

After several weeks of investigations by Fortescue and its founder Andrew Forrest, who has been livid with the short-selling of his company’s stock, the Perth miner said yesterday it had discovered that 10 per cent of its issued capital was the subject of stock loans.

The shares were lent to other investors who then sold them in the expectation of being able to buy them back at a much lower price.

“The stock loans were made by the owner’s custodian and the owner has since advised the company that it will immediately rectify the situation,” Fortescue said in a brief stock exchange announcement.

Fortescue did not name the shareholder or the custodian and a spokesman for the miner last night refused to comment further.

But is it understood the shareholder in question is Mr Falcone’s Harbinger Capital, Fortescue’s second-biggest shareholder and the only party apart from Mr Forrest (36.5 per cent) to own more than 10 per cent of the Perth miner.

Sources said Mr Falcone had been unaware that his custodian had lent his Fortescue stock. It remains unclear how long it will take Mr Falcone’s custodian to unwind the transactions and recoup the lent stock.

The stock is thought to have been picked up by numerous hedge funds punting on sharp falls in Fortescue’s share price.

Mr Forrest has been outspoken in his attacks on short sellers, who he has accused of triggering a Fortescue share price collapse from $13.15 only two months ago to as low as $7.15 two weeks ago by spreading damaging rumours about the miner’s Pilbara operation.

“All these rumours we think are profligated by people we believe have a financial interest in shorting this company,” Mr Forrest said in July. “We don’t appreciate it. It is not helpful for the workings of a proper financial system.”

Fortescue is expected to continue probing its share register movements in an attempt to find out which brokers and hedge funds were behind the Harbinger stock-lending exercise.

Mr Falcone has been a long-term backer of Mr Forrest and Fortescue, rewarded by the miner’s 720 share price appreciation over two years.

That has not stopped the billionaire investor from profiting from short selling.

His decision to build up a 3.3 per cent short position in BankWest parent HBOS earlier this year almost scuppered an emergency $8.2 billion rights issue proposed by the UK bank.

PETER KLINGER Edited by SEAN SMITH

Source: http://www.thewest.com.au/default.aspx?MenuID=3&ContentID=95714

 

[MR_B]

6% down at this time today? What happened there any idea? Is it because I decided to buy yesterday? If I plan to sell this in 9months I have to stop this daily check...

 

[Hendrik]

6% down at this time today? What happened there any idea? Is it because I decided to buy yesterday? If I plan to sell this in 9months I have to stop this daily check...

"In London on Monday night there were more falls in base metals, with copper dropping 2% and nickel 5%. Last night nickel held up but copper lost another 1%"
-sharecafe.com.au

commodities are weakening in price but overall the sectors growth looks strong for the second half of 08.

 

[gav]

I had a buy order in at 7.55 before I went to the gym this morning, but I didnt think it would get filled. Got to work and couldnt believe the share price, and it has been down hill all afternoon since. Down 8.7% today as I type this, and to think it hit 8.20 yesterday...

 

[agro]

I had a buy order in at 7.55 before I went to the gym this morning, but I didnt think it would get filled. Got to work and couldnt believe the share price, and it has been down hill all afternoon since. Down 8.7% today as I type this, and to think it hit 8.20 yesterday...

a please explain notice should hit the ASX

we need some disclosure imo... cause there is no reason but the shorters for it to go down?