FMG - Fortescue Ltd

[Miner]

Posted on MSN 1840 hrs

defers iron ore expansion spending

http://money.ninemsn.com.au/article.aspx?id=656578

thanks for posting.
I was at least ahead of MSN broadcast.
Just watch tomorrow FMG price - either will rise drastically or fall depends on market expectation.

 

[sanj]

I think its a smart move to hold out on expansion in this current period. By holding cash will allow them to weather the economic storm with a little more ease. As a current shareholder I would prefer this outcome rather than having expansion go ahead only to find it very difficult to:

A) Sell it
B) Get a competitive price for the goods
C) Over supply the market giving the Chinese more bargining power
D) produce more Negative outflow earnings reports due to expansion

 

[Frankhalo]

FMG's delay by one year is also on Reuters
nb WP share price vs Asx index shown below
i suppose this means that cash is king and fmg wants some now.
still 55mtpa does place fmg as a small fish in bigboys ring as far as IO is concerned. (Vale, Bhp Tinto, FMG & Kumba)

The income generated from current and targeted 55mtpa contains a hell of alot of zeros. From a May 08 start up to be in the company of the above mentioned speaks louder than words on the subject of FMG's achievements so far. July 09 figures will tell the full story.

 

[Sharks37]

thanks for posting.

Just watch tomorrow FMG price - either will rise drastically or fall depends on market expectation.

Thanks for the very insightful advice miner, I'll look forward to seeing the FMG price either rise or fall tomorrow...

 

[treefrog]

Thanks for the very insightful advice miner, I'll look forward to seeing the FMG price either rise or fall tomorrow...

sharks, the message I got from miner's post was more an indication of the market expectations following:
recent FMG trip to china to determine feel for china market followed by FMG announcing pruning of expansion timetable
wonder what the 'indications' were??

 

[SenTineL]

Did everyone notice the price movement has been very small either way in the last 8 days?

Do you think this signals a bit of stability in regards to current SP? ie it shouldn't really go below $2.50?

With the reserve confident Australia is going to avoid a recession, China slowing but not stalling, ASX in some positive momentum I am optimistic.

 

[Frankhalo]

From other poster on a FMG thread, any accountants out there ?

FMG expects to produce a conservative 55mt this year with an average grade of 60% fe.

the current benchmark price is $144 USD per tonne.

lets assume that the benchmark price falls by 25%, ie to $108 USD per tonne.

lets assume the long run AUD/USD rate is $0.75.

lets assume that FMG's debt of $3b AUD is charged 10% pa in int.

lets also assume that all FMG's customers dont increase or decrease consumption and that they all pay their bills.

one last assumption, assume that FMG's cost per tonne is $25 AUD.

so they will produce 55mt x 60% x {($108/$0.75)-$25} = 33mt x $119 AUD per tonne = $3.927b AUD in profit from the ore sales.

less the int of $3b x 10% = $300m AUD.

Therefore FMG should still make $3.927b - $300m = $3.5b AUD.

for FMG's price to fall further the fe price will have to really collapse. remember that the spot price was $200 USD per tonne last year, so the fall in benchmark prices wont be as drastic as the spot market. i think 25% is quite reasonable.

so $3.5b of EBIT x 4 = $13.4b. If FMG is trading around this level then it quite attractive, if the benchmark price falls further than 25% or the AUD goes back over $0.75 then the price will weaknen, BHP is still trading on a forward PE of 6x.

so i suggest all you doom and gloomers out there look at the fundamentals first, then try and work out a fair entry level.

 

[skyQuake]

Spot prices are around $70 US at the moment which tends to lead the Long term contract prices. RIO is selling at spot despite the massive price difference to the contract.

I would also assume several of FMG's smaller customers would be very strained at the moment. Demand is slacking off noticable.

Alternately, I would suspect cost per tonne to take a drop with falling oil prices, and the possibility of winning the rail dispute.

 

[Miner]

From other poster on a FMG thread, any accountants out there ?

FMG expects to produce a conservative 55mt this year with an average grade of 60% fe.

the current benchmark price is $144 USD per tonne.

lets assume that the benchmark price falls by 25%, ie to $108 USD per tonne.

lets assume the long run AUD/USD rate is $0.75.

lets assume that FMG's debt of $3b AUD is charged 10% pa in int.

lets also assume that all FMG's customers dont increase or decrease consumption and that they all pay their bills.

one last assumption, assume that FMG's cost per tonne is $25 AUD.

so they will produce 55mt x 60% x {($108/$0.75)-$25} = 33mt x $119 AUD per tonne = $3.927b AUD in profit from the ore sales.

less the int of $3b x 10% = $300m AUD.

Therefore FMG should still make $3.927b - $300m = $3.5b AUD.

for FMG's price to fall further the fe price will have to really collapse. remember that the spot price was $200 USD per tonne last year, so the fall in benchmark prices wont be as drastic as the spot market. i think 25% is quite reasonable.

so $3.5b of EBIT x 4 = $13.4b. If FMG is trading around this level then it quite attractive, if the benchmark price falls further than 25% or the AUD goes back over $0.75 then the price will weaknen, BHP is still trading on a forward PE of 6x.

so i suggest all you doom and gloomers out there look at the fundamentals first, then try and work out a fair entry level.

Fantastic set of assumptions Frankhalo

YOu might have noticed your assumption on price of $108 per ton is already discounted on $70 per ton spot price.

Few things you forgot to assume:

You have assumed that the 55 MTPA will be achieved in the full financial year of 2008-09. What about plant availability and utilisation.

WIthout having any creative accounting I am ready to put my only two baxxlls against the surface miner to be crushed if with current rate the annual producton will be even 50 MTPA at the end of this financial year. I am not a gloom or doom man but any one with some experience in Operations and Maintenance and understanding of ramping of a new plant will understand what I said


Look do not get me wrong I am still holding FMG and purchased at a very high price. My heart tells me that the FMG wil rise beyond $7

But I can not distort reality of FMG strength and possibilities just because my head does not in agreement with my heart

Please revisit this site with your calculated stuff and what percentage of assumptions became true in next 12 months. Until then let us enjoy the falling market from the heavenly bliss

 

[nunthewiser]

Fantastic set of assumptions Frankhalo

YOu might have noticed your assumption on price of $108 per ton is already discounted on $70 per ton spot price.

Few things you forgot to assume:

You have assumed that the 55 MTPA will be achieved in the full financial year of 2008-09. What about plant availability and utilisation.

WIthout having any creative accounting I am ready to put my only two baxxlls against the surface miner to be crushed if with current rate the annual producton will be even 50 MTPA at the end of this financial year. I am not a gloom or doom man but any one with some experience in Operations and Maintenance and understanding of ramping of a new plant will understand what I said


Look do not get me wrong I am still holding FMG and purchased at a very high price. My heart tells me that the FMG wil rise beyond $7

But I can not distort reality of FMG strength and possibilities just because my head does not in agreement with my heart

Please revisit this site with your calculated stuff and what percentage of assumptions became true in next 12 months. Until then let us enjoy the falling market from the heavenly bliss

Thankyou Miner for an unbiased post from a holder. ya know what they say about assumption .....makes an ass outa U and umption

cheers

 

[gav]

Wonder if this will affect FMG's share price tomorrow...

From businessday.com.au

Mine giant slashes production
Alan Clendenning
November 2, 2008

THE world's top iron ore producer will cut its annual production by 30 million tonnes, as demand for steel crumbles because of the global economic crisis.

A spokesman for Brazil's Companhia Vale do Rio Doce SA said yesterday that steel companies across the globe have cut production on average by 20 per cent. Chief executive Roger Agnelli said some have slashed production by as much as 40 per cent.

Stalling demand for iron, the world's most common metal, used to make everything from sewing needles to oil tankers, reflects a broad economic slowdown.

Vale predicts a 9 per cent reduction of its 2008 annual production forecast of 325 million tonnes of iron ore, the raw ingredient for making steel.

The world's second-largest miner after BHP Billiton, Vale also will reduce output of nickel and aluminium.

Mr Agnelli said steel demand may start to pick up in the second quarter of next year, but that no one knows for sure because the global credit crunch is so severe that it has crushed sales of everything from cars to steel beams.

"There are some parts of the world where people don't want to buy anything," Mr Agnelli said. "Nothing, nothing, nothing."

Vale said today it will shut some mines in the Brazilian state of Minas Gerais.

Employees will be sent home with pay. Vale did not say how long the shutdowns will last.

The company will keep a ferroalloy plant in France idle until April and a plant in Norway will extend its furnace maintenance until June. The two closures will result in a production cut of 600,000 tonnes of manganese ore and 90,000 tonnes of ferroalloy.

The global slowdown has led to a drop in demand for base metals such as nickel and aluminum, reflected in declining prices.


Vale's net profit for the July to September period hit $US4.8 billion ($7.2 billion), up from $US2.9 billion in the third quarter of last year.

 

[Frankhalo]

Fantastic set of assumptions Frankhalo

YOu might have noticed your assumption on price of $108 per ton is already discounted on $70 per ton spot price.

Few things you forgot to assume:

You have assumed that the 55 MTPA will be achieved in the full financial year of 2008-09. What about plant availability and utilisation.

WIthout having any creative accounting I am ready to put my only two baxxlls against the surface miner to be crushed if with current rate the annual producton will be even 50 MTPA at the end of this financial year. I am not a gloom or doom man but any one with some experience in Operations and Maintenance and understanding of ramping of a new plant will understand what I said


Look do not get me wrong I am still holding FMG and purchased at a very high price. My heart tells me that the FMG wil rise beyond $7

But I can not distort reality of FMG strength and possibilities just because my head does not in agreement with my heart

Please revisit this site with your calculated stuff and what percentage of assumptions became true in next 12 months. Until then let us enjoy the falling market from the heavenly bliss

Just wanted some feed back on this post Miner, yes alot of assumptions, till July 09 comes around the true figures will not be known. My understanding is that FMG do not currently sell on the spot market ( correct me if I'm wrong ) but rather agreed on contracts. Again the Simple truth is till we get a full financial year of trade with abit of global crisis added to the mix a full accurate figure is still a long way off, but I dont need to tell you that guys.

Regards

Frank

 

[Sharks37]

All well and good to quote what Vale are doing, but one thing FMG have demonstrated to date is they are very switched on and they are cleverly marketing themselves as the 4th seaborne supplier of IO to the chinese market and I think this will suit the chinese. So just because Vale's output is cut doesn't mean a corresponding loss for FMG - they could well be positioned to take some of Vale's market share.

I've got a position in FMG and bought in at higher prices than current levels, but I don't think my comments above are simply wishful thinking.

 

[Garpal Gumnut]

Did everyone notice the price movement has been very small either way in the last 8 days?

Do you think this signals a bit of stability in regards to current SP? ie it shouldn't really go below $2.50?

With the reserve confident Australia is going to avoid a recession, China slowing but not stalling, ASX in some positive momentum I am optimistic.

I do not hold FMG but am looking at it.

The price action seems eeringly familiar to Aug 08, apart from the recent spike up and down.

I'll wait.

I may miss it, but I'll wait.

gg

 

[Sharks37]

GG the price movement doesn't look that similar at all if you take into account the earlier part of the August plateau which is actually an extended slide, whereas in October it has completely levelled after a steep fall. As they say in the classics, only time will tell...

 

[gav]

All well and good to quote what Vale are doing, but one thing FMG have demonstrated to date is they are very switched on and they are cleverly marketing themselves as the 4th seaborne supplier of IO to the chinese market and I think this will suit the chinese. So just because Vale's output is cut doesn't mean a corresponding loss for FMG - they could well be positioned to take some of Vale's market share.

I've got a position in FMG and bought in at higher prices than current levels, but I don't think my comments above are simply wishful thinking.

Where did I say that this would correspond to a loss for FMG? I merely stated that I wonder if it will affect FMG's SP tomorrow (now today).

 

[Sharks37]

Where did I say that this would correspond to a loss for FMG? I merely stated that I wonder if it will affect FMG's SP tomorrow (now today).

Sorry Gav I wrote that badly. You are right you (or more correctly the article) didn't say a loss for FMG but the implication from Vale's statements was that the whole market would be having to take a cut in volume because they were. I was trying to point out that each player is facing different circumstances and just because Vale was cutting production (rather than cutting price as I understand it) that doesn't mean other players like FMG will have to, as they could be taking market share at Vale's expense.

 

[SenTineL]

I do not hold FMG but am looking at it.

The price action seems eeringly familiar to Aug 08, apart from the recent spike up and down.

I'll wait.

I may miss it, but I'll wait.

gg

Big lesson that's been around for a long time - past performance is not indicative of future performance.

Even in this thread from memory there people saying things to the effect of "once the SP hits all time high it goes down then hits another all time high" - that proved to be BS along with all other predictions as in regard to future SP

 

[gav]

I just noticed that three directors purchased shares yesterday afternoon. Maybe they know something we dont?

 

[treefrog]

I just noticed that three directors purchased shares yesterday afternoon. Maybe they know something we dont?

not their choice gav.
the listed nature of change for all 3 directors was purchase by independent trustee for their share plan so carries little if any weight