The Investment Doctor • Mon, Dec. 1
There are 2 articles on this stock available only to PRO subscribers.
From other sites
at MarketWatch.com (Jun 19, 2014)
at MarketWatch.com (Jun 17, 2014)
at CNBC.com (Apr 16, 2014)
at CNBC.com (Mar 7, 2014)
at MarketWatch.com (Feb 18, 2014)
- Fortescue announces a comprehensive plan to reduce the capital expenditures by 50%.
- This is a nice surprise, but Fortescue is just buying some time as the majority of the savings comes from deferrals.
- The investment thesis remains, but I do expect Fortescue to reduce its dividend or put it at zero to keep the cash inside the company.
- Fortescue Metals Group is the fourth largest iron ore producer in the world, mining from low-cost operations in Australia.
- FMG has doubled its dividend in the last year, reflecting the higher earnings as a result its capacity expansion.
- The stock has lost more than 40% in recent months because of the depressed iron ore price and now yields 5.8%.
- The price of iron ore is the determining factor for FMG to maintain its dividend.
Update: Fortescue Metals Is Doing Much Better Than Its GuidanceThe Investment Doctor • Fri, Oct. 17
- Fortescue Metals is still operating above its official guidance.
- This is a positive surprise and the company is reducing its net debt fast.
- The investment thesis doesn’t change, and the company’s production rate and cost per tonne confirm my expectations.
- Fortescue Metals has shipped 15 million tonnes of iron ore last month, which is more than the 13Mt needed to meet its guidance.
- At a rate of 180Mtpa, the port is performing really well, and I didn’t expect the amount of shipped ore to be this high.
- The investment thesis remains unchanged, as the good news is being offset by the drop in the iron ore price.
- Fortescue Metals reports excellent earnings and is trading at a P/E of just 5.
- Nothing unexpected here, but 2015 will be a difficult year for Fortescue as a huge tax bill is waiting, as well as lower revenues because of pre-paid ore deliveries.
- 2015 should be the last difficult year, and Fortescue should make quite a lot of free cash from next year on, so the investment thesis is still valid.
- Fortescue Metals is calling $500M worth of unsecured bonds maturing in 2018 and further reduces its net debt position.
- As I already explained Fortescue was generating quite a lot of FCF, this is not unexpected, as reducing the debt also reduces the interest payments and further enhances the FCF.
- The investment thesis remains standing as Fortescue proves it is capable of reducing debt thanks to its free cash flow.
Fortescue Metals - One Of The World's Largest Iron Ore Producers
- Fortescue Metals has almost triples its output in just a few years and will now be fully benefiting from economies of scale.
- The company will have an industry-leading C1 cost of less than $35/t.
- Even though investors should not ignore the $7.2B net debt position, keep in mind the EBITDA/Debt ratio is between 1.5-2, which is acceptable.
- Now the major capital expenditures are over, Fortescue should generate an after-tax free cash flow of $1.7B per year at the current iron ore price.
- According to my calculation, the fair value (using a 6% discount rate) for Fortescue is $5.52/share, for an upside potential of 28%.
There are no Transcripts on FSUMF.
Wed, Nov. 19, 12:26 PM
- Iron ore prices extend their historic decline, approaching $70/dry ton in a retreat to the lowest level in more than five years, as analysts rule out any Chinese restocking that typically supports prices towards the end of each year.
- The price is now at a level at which all but the three biggest low-cost producers - Rio Tinto (RIO -2.4%), BHP Billiton (BHP -3%) and Fortescue (OTCPK:FSUMF -8.8%) - are either generating losses or are struggling to break even.
- Steel stocks also are getting whacked: SCHN -5.4%, X -4%, PKX -3%, AKS -3%, CMC -2.7%, STLD -2.5%, NUE -1.6%, MT -1.3%.
Tue, Nov. 18, 7:49 AM
- Tugboat engineers at Australia’s Port Hedland have voted down a proposed agreement on wages and leave, extending the threat of disruptions to iron ore shipments at the world’s largest bulk export terminal.
- The rejection renews the risk of delaying exports by companies including BHP Billiton (NYSE:BHP) and Fortescue Metals (OTCPK:FSUMF).
- Iron ore is Australia’s biggest commodity export earner and disruptions could cost suppliers A$100M/day, BHP has said, and shipments through Port Hedland represented ~55% of the country’s iron ore exports last year.
Mon, Nov. 10, 7:58 AM
- Tugboat masters and deckhands at Australia’s Port Hedland have voted to accept a new labor agreement.
- While engineers still plan a four-hour work stoppage on Nov. 12, the agreements lessen the risk of disruption to iron ore supplies from BHP Billiton (NYSE:BHP) and Fortescue Metals (OTCPK:FSUMF).
- Iron ore is Australia’s biggest export earner, and shipments through Port Hedland represented 55% of the country’s iron ore exports last year; more than 80% of the cargoes go to China.
Wed, Oct. 8, 10:30 AM
- With any hope of Glencore (OTCPK:GLCNF, OTCPK:GLNCY) buying Rio Tinto (NYSE:RIO) on hold for six months, Glencore could turn to other targets such as Fortescue Metals (OTCPK:FSUMF) or Rio could pursue a defensive deal with a company such as Anglo American (OTCPK:AAUKF, OTCPK:AAUKY), Sanford Bernstein analyst Paul Gait speculates.
- In the past, “we have had that kind of one action precipitate a whole cascade of events that puts a number of other guys in play," Gait tells Bloomberg.
- On the other hand, Glencore's pursuit of Rio may not be over, Gait says, adding "the industrial logic and the strategic logic are compelling to the point of being overwhelming."
Wed, Sep. 24, 5:24 PM
- The Russian Arctic is not the only offshore region generating a potential political problem for Exxon Mobil (NYSE:XOM), as Forbes' Tim Threadgold thinks XOM also faces the possible loss of the giant Scarborough gas field off the coast of western Australia.
- The ultra-deepwater Scarborough is a difficult field to develop, not just because of its location but also because of Australia’s high domestic costs and the gas contains limited amounts of high-profit liquids.
- Threadgold says a recent statement from partner BHP Billiton (NYSE:BHP) that the company was focusing on North American oil and gas opportunities because they offer higher rates of return on investment could play into the hands of an Australian company - Fortescue Metals (OTCPK:FSUMF) - which would like to own Scarborough, and theoretically could do so without paying XOM and BHP a dollar under Australia's “use it or lose it” laws.
Mon, Jul. 28, 9:53 AM
- TransAlta (TAC -0.6%) says it will build a gas power station in Western Australia for ~A$570M ($536M), after securing 25-year power purchase agreements with a new customer and an existing one in the region.
- TAC says the new station will supply power to state-owned utility Horizon Power, the new customer, and existing customer Pilbara Infrastructure, a unit of Fortescue Metals (OTCPK:FSUMF).
- TAC expects its business in Western Australia to increase to 16% of EBITDA by 2017, when the combined cycle gas power station is expected to be commissioned.
Thu, Jul. 24, 8:34 AM
- Tugboat workers at Australia's Port Hedland are again threatening to strike, raising the prospect of disruptions to shipments of iron ore, which is the country's biggest export earner.
- Deckhand members of the Maritime Union of Australia have voted to take industrial action after failing to reach an agreement on pay and conditions with the contractor that runs tugboats on behalf of BHP Billiton (NYSE:BHP) and other major exporters.
- BHP has warned a strike could cost A$100M/day (US$94.5M) in lost sales for the port's iron ore exporters, which include Fortescue Metals (OTCPK:FSUMF).
Mon, Jun. 23, 2:16 PM
- Vale (VALE +2.2%) is higher after China reported better than expected June flash manufacturing PMI data, but while iron ore prices may incrementally firm up from Chinese demand, Credit Suisse cuts its iron ore price outlook as it does not foresee any real strength ahead without the kind of broad based stimulus package the current Chinese administration has disavowed.
- The firm now forecasts iron ore to average only $90/ton in H2 of this year, and expects prices to average $89/ton next year and $87/ton in 2016.
- Plus, the big three Australian miners - Rio Tinto (RIO), BHP and Fortescue Metals (FSUMF) - are racing to expand production this year before Vale begins to contribute more meaningfully in 2015, meaning plenty of overseas supply should be expected.
Mon, Jun. 9, 8:41 AM
- BHP Billiton (BHP) has cut another 170 jobs at its key Mt. Whaleback iron ore operation in the Pilbara region of Western Australia state, on top of 100 layoffs last week tied to iron ore production.
- Spot iron ore prices are hovering just above two-year lows, eating into profits at BHP and rivals such as Rio Tinto (RIO) and Fortescue Metals (FSUMF) and prompting the mines closures, asset sales and job losses.
- BHP is Australia's no. 2 exporter of iron ore, which accounts for a majority of its earnings.
Thu, May. 22, 9:59 AM
- The union representing tugboat workers at Australia’s Port Hedland says it will suspend taking strike action for the next 30 days to seek a settlement after "productive” discussions.
- BHP had said it would ask the Australian government to intervene to stop a threatened strike in the name of the national interest.
- Iron ore prices have climbed 1.3% to $98.80/metric ton in the past two days, off a 20-month low of $97.50 on May 20, as BHP Billiton (BHP +1.1%) and Fortescue Metals (FSUMF) warned a port strike would paralyze operations.
Tue, May. 6, 12:48 PM
- Fortescue Metals (FSUMF) says it wants to restart talks on a proposed iron ore export port in the Pilbara region of Western Australia that could allow smaller miners to compete more effectively with giant rivals such as BHP and Rio Tinto (RIO).
- Infrastructure in the Pilbara - from which two in every five tons of iron ore shipped globally by sea are sent - is tightly held by the major miners, and Fortescue CEO Nev Power says building a port at Anketell Point would support his company's its plans to develop iron ore reserves in the western corner of the Pilbara, but iron ore prices weakened by oversupply would mean risks for developers.
- Power's comments come a day after Baosteel and Aurizon Holdings said they wanted to acquire Aquila Resources, the company spearheading development of the port.
Tue, Apr. 1, 10:40 AM
- J.P. Morgan cuts its 2014 iron ore price forecast by 6% to $118/metric ton, expecting demand from China will grow more slowly to 3.5% from 5% previously, while the likes of Rio Tinto (RIO), BHP and Fortescue (FSUMF) are expected to add ~100M metric tons of supply this year, adding pressure on pricing.
- Iron ore climbed 4% in Shanghai to $116.8/ton yesterday, trimming the quarterly decline to 13%, meaning JPM basically is expecting iron ore prices to be at the current spot level this year.
- The firm still likes Brazilian iron ore producer Vale (VALE), saying it will generate positive cash flow even at the lower iron ore price.
Thu, Feb. 27, 5:10 PM
- Iron ore prices have tumbled to eight-month lows thanks to lower demand from Chinese steel mills, and some analysts think prices may have further to fall as steelmakers are likely to delay new purchases until they can secure cargoes at a heavy discount.
- That's a worry for global mining companies such as Rio Tinto (RIO) and Fortescue Metals (FSUMF) as they race to repay massive loans used to expand their operations; Rio says iron ore prices averaged $126/metric ton last year, which enabled it to shave $4B from its debt load in H2, but with prices falling to ~$118/ton, miners may have to slow their debt repayments.
- Underscoring the risk to its bottom line from price volatility, Rio said recently that $1.2B would have been wiped off last year's $10.2B underlying earnings had iron ore prices averaged $113/ton.
Fri, Jan. 3, 8:59 AM| Comment!
Sep. 25, 2013, 10:59 AM
- Global iron ore prices are expected to trade in a range just below current levels in Q4 and beyond, miners Vale (VALE -0.7%) and Fortescue Metals (FSUMF.PK, FSUGY.OB) say, reflecting optimism Chinese demand will stay resilient.
- A top Vale executive expects more moderate demand growth but no big decline in China, the world's top iron ore consumer; he predicts prices of $120-$130/metric ton in Q4.
- Vale's expansion plans to raise annual production capacity to 480M metric tons by 2018 from 306M this year remain intact, the exec also says.
Sep. 17, 2013, 1:32 PM
- Don't draw any conclusions against the sale of his entire stake in JPMorgan (JPM), Jim Chanos tells Bloomberg. It was a hedge against his shorting of a number of Chinese banks (ETF: CHIX). He reminds he's still long Citigroup (C) against the Chinese shorts. "Our business is still shorting ... China has been a bright spot."
- Having said that, Chanos is finding himself enamored of a tech stock he originally purchased as a hedge: Samsung (SSNLF.PK, SSNGY.OB).
- Back in China, Chanos says the country's credit system has "gone crazy" - new debt is growing at 30-40% of GDP per year vs. about 10% nominal GDP growth (and Chanos doesn't buy the GDP numbers). Other than Chinese banks, Chanos remains short CAT along with a number of others which benefitted from the global materials boom. Two names he mentions are Australia's Fortescue (FSUMF.PK) and VALE.
- China ETFs: FXI, GXC, PGJ, YAO, FCHI, PEK, CAF, YXI, XPP, FXP, MCHI, YINN, YANG, TCHI, CHXF, KFYP.
FSUMF vs. ETF Alternatives
Fortescue Metals is principally engaged in the operation of an integrated logistics chain starting with the mining of iron ore from the company's Cloudbreak mine site, the railing of product along the company's heavy haul rail line through to the loading of ships at the company's port facility... More
Other News & PR