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FMG $2.46

fmg iron bridge jv

  1. karasco58

    2,070 posts.

    Based on this announcement, am I correct in assuming that $500m will be paid to Fortescue's The Pilbara Infrastructure TPI) as an upfront payment?

    If so these funds will either be used to repay debt or add to the current cash position which should now be in excess of $2.5b.

    If Iron Price spot price remains at current levels or doesn't fall below $120mt, the according to Financial Review profits for FNG would surge by 51.00%

    Business Spectator post

    Formosa invests big in Fortescue

    31 min ago

    Fortescue Metals Group Ltd has secured a significant investment from Formosa Plastics Group to its FMG Iron Bridge joint venture, which will develop the FMG Iron Bridge project.

    In a statement to the Australian Securities Exchange, Fortescue said Formosa, Taiwan's largest private company, would contribute $US1.15 billion ($A1.26 billion) to the joint venture.

    FMG Iron Bridge is jointly owned by Fortescue and a subsidiary of China’s Shanghai Baosteel Group Corporation.

    The joint venture owns the North Star and Glacier Valley iron ore deposits, south of Port Hedland in Western Australia.

    The Financial Review

    Fortescue, Australia’s third-largest iron ore producer, is also attempting to sell a minority stake in its infrastructure assets to repay debt. But there is growing speculation that a higher spot price is bolstering the group’s resolve to retain complete control over the assets.

    Royal Bank of Canada analyst Chris Drew said the iron ore price could be underpinned in the short- to medium-term by strong Chinese steel production, record Chinese iron ore imports and low iron ore inventories.

    “With iron ore and the Australian dollar looking more favourable for producers, we would expect consensus earnings upgrades to add further support to the producers,” said Mr Drew.

    If conditions persist through the December half, Mr Drew said earnings per share forecasts could increase by 51 per cent for Fortescue, 24 per cent for Rio and 119 per cent for fellow Western Australian-based iron ore junior producer, Atlas Iron.

  2. dhinh

    215 posts.

    Sounds right to me. 500m is nice and would help in paying down debt rapidly. Further I think this deal will place some pressure on other miners seeking access to the TPI. It puts a price on access and reduces capacity.

  3. karasco58

    2,070 posts.

    The biggest issue for FMG is that the market continues to downgrade the SP due to high debt levels, once the market believes that the debt level will be reduced with a combination of:

    1. Cost reductions (done)
    2. Sale of interest in TPI
    3 Increase in IO volumes & shipments
    4. Repayment from strong cash flows

    Then and only then will the SP move to a level that is in line with the potential that FMG has going forward.

    The issues around third party access to TPI is not an issue, it is in fact a positive that will add cash flow and increase profits.

    So far the guidance and updates provided by FMG have all eventuated and exceeded expectations, the time is coming near that this stock will attract institutional investors as it will move closer and closer to being classed as investment grade.

    Cash on hand after meeting capital expenditure commitments is strong

    December 2012 $2.0B
    March 2013 $1.5B
    June 2013 $2.2B

    Not a bad result, even better once volume increases especially if IO price remains steady at above $120mt or near that price.

    So far in the Sept Qtr IO price has surprised even the analysts.

  4. Robot42

    621 posts.

    Even if the price dipped to $110 this quarter, it would still be a very strong quarter compared to what the 'experts' were forecasting. Time will tell, September/October will be defining months in the medium term, a strong price through this period will see the share price back above $5 imo.

  5. TenBanger

    335 posts.

  6. harvett

    2,671 posts.

    It will get back to $5 plus when the 3rd qt is done and dusted and all will see the GS and House and Holes forecast were crap. But for the moment too much to soon I think has given rise to the shorter again. Profit results not out yet. TPI asset sale still hanging out there. Full scale production still to occur. Cash payments to reduce debt still to happen. And even a possible dividends. My point being there is still many a good news story to yet unfold, but I think the market is getting ahead of itself and thus today's correction and opening the door to shorts again.

  7. tobyjack

    6,064 posts.

    :16 pm
    Aug 15, 2013

    What Australia’s Election Means For Miners: J.P.Morgan

    By Gillian Tan
    J.P.MorganJPM -1.59% analyst Lyndon Fagan sees double delight for the mining companies in Australia if Prime Minister Kevin Rudd loses an election due Sept. 7.

    That’s because the opposition Liberal National coalition are likely to scrap the Mineral Resources Rent Tax–levied on profits from the production of iron ore and coal above a certain level–and a carbon tax.

    A train loaded with iron ore travels toward the Rio TintoRIO.LN -2.83% Parker Point iron-ore facility in Dampier in the Pilbara region of Western Australia. —Reuters
    “The combined impact of eliminating these takes would add 6% and 3% to our Rio Tinto PLC and BHP Billiton Ltd.BHP.AU -1.23% net present values, respectively,” Mr. Fagan told clients Friday. He said the impact would be minimal for nation’s third-largest miner, Fortescue Metals Group Ltd.

    Opinion polls are showing support shifting in favor of the conservative Liberal Nationals, which has been out of power since 2007.

    J.P.Morgan carries an Overweight rating on Rio Tinto, with a price target of A$77.00 a share, an Overweight recommendation on Fortescue, with a A$4.85 target and is Neutral on BHP, with a A$42.00 target.

    In the year to date, all three stocks have underperformed the benchmark S&P/ASX 200, which has rallied 9.8%. BHP has declined 0.6%, Rio has declined 8.2% and Fortescue has fallen 11.1%.


  8. farmboy

    7,247 posts.

    "FMG has some debt concerns no doubt,"

    ..and is without doubt the best most experienced company to deal with them.

    They wrote the book on clever debt management, and others would do well to emulate them. That Fortescue has come to where it is today against incredible odds highlights the appalling (mis) management of a lot of companies. Klobbers got a lot of credits, but I think he was shocking. His predecessor of a few years ago, Paul Anderson, picked BHP out of the scrap heap foisted on it by a couple of nameless do-nothing MDs. We know what happened to RIO's former MD.

    Any big company can drift along with sub-standard management for awhile, but will only reach its true potential with hung-ho active management. To put it another way, good times make good managers out of everybody, but its only when the tide goes out we see who has no clothes on.

    Management is what makes FMG very different from most other resource companies. But unfortunately the elephant in the room that I see is invisible to many analysts. Analysing it without regard for its culture is a waste of time.

    As I mentioned recently here, FMS, (4.7c), ARH (3.2c) and FMG ($4.08) were all in the same boat once.

  9. vj67

    65 posts.

    is Formosa a customer or shareholder??
    either way, I think it is a good deal for FMG..!
    entry fees for TPI access $500M
    entry fees for Iron Ore Bridge project $521M
    $123M for a 31% share of the pr0ject, seem bit low to me
    (ie valuing the project only @$400M)
    Guess can't complain too much .
    when someone pay you $$$1.13Billion to help dig up the backyard and use your trolleys....!!

  10. karasco58

    2,070 posts.

    A lot of larger than normal parcels changing hands today, despite a positive announcement.

    Could be the shorter's offloading?

    Let's hope the 2013 results give a lift to the SP.

  11. the.frack

    5,763 posts.

    maybe Formosa will decide to dig up fms's backyard too

  12. harvett

    2,671 posts.

    It is all just the excuse that was needed for a short term correction. Dow down, a death on a mine site, Brockmans, IO spot price rally on hold for the day has outweighed the good news story of the day. Again once the dust settles and the air clears sentiment will return will a vengeance. $4.02-08 gap was filled today and that is a good thing as well.

    Patience was required when this hit 2.90 and those who held were rewarded by the good fundamentals of the company regardless of the poor sentiment. Again patience will be required to see it through to the 4.50-5 mark. 3rd Qt predictions have to be tested and found above the $120 DMT mark for FMG to fly above the $5 target. And with only one more month and half to come that is looking good.

  13. AverageJoe

    6,283 posts.

    Hindenberg Omen

  14. book

    386 posts.

    The last statement is worth a read - Formosa will pre pay $500M to access the Herb Elliott port

    Formosa will acquire a 31 percent interest in the FMG Iron Bridge joint venture for $123 million and will provide the first $527 million of capital spending to develop the first stage of the project, 100 kilometers south of Port Hedland, Perth-based Fortescue said today in a statement.

    FMG Iron Bridge Ltd., jointly owned by Fortescue and a unit of China’s Baosteel, owns the North Star and Glacier Valley iron ore deposits, which have a combined iron ore resource of 5.2 billion metric tons, Fortescue said. Taiwan’s Formosa agreed to purchase as much as 3 million tons a year of iron ore at market prices to supply a steel mill under construction at Ha Tinh, in Vietnam, the statement said.

    “The successful development of the FMG Iron Bridge project is of strategic importance to Formosa,” Hung-Chi Yang, President of Formosa Resources Corp., said in the statement. “This investment will secure a substantial long term resource to complement the group’s manufacturing activities.”

    First production of 1.5 million tons a year could begin in early 2015, Fortescue said. Formosa will prepay $500 million upfront to Pilbara Infrastructure Ltd. to access Fortescue’s Herb Elliott Port under separate infrastructure access arrangements, Fortescue said.

  15. Time to reload, Fmg got smashed today, but will be over $5 at the of this quarter, buy buy buy.

  16. ai20

    87 posts.

    another iron in the fire,another customer from a different country willing to pay big bucks to access what fmg has.

  17. karasco58

    2,070 posts.

    Even though yesterday's announcement about the investment in FMG Iron Bridge by Formosa Plastics was a positive one, in particular the $500m advance payment for rail access.

    The anaylysts can't help themselves by downgrading even a positive outcome. Not huge bikkies????

    An upfront payment of $500m, customer for 3.0mt at market prices, capex to be funded by Formosa and possibility of a float of FMG Iron Bridge???

    I would have thought this was in fact "big" bikkies??


    Fortescue Metals has announced this morning that it’s secured a new investment from Taiwan’s largest company, Formosa Plastics, to expand its Iron Bridge deposit, which is already 12% owned by Baosteel. From the release, Formosa will:

    Acquire a 31% interest in the JV for US$123 milion
    Fund the first US$527 of capex for Stage One, 1.5 mtpa
    Participate in Stage Two to about $350 million for another 9.5 mpta
    Purchase up to three mpta at market prices
    Not huge bikkies and I don’t know a whole lot about this deposit or the company for that matter but they obviously see better prospects for iron ore and steel than I do!

  18. cubitus

    55 posts.

    It does read like a really good announcement overall. In particular I like the $500MM payment to infrastructure access. That puts a price-tag on TPI and may well be a crucial piece in current court proceedings re: third party access. What are expert's opinions on this?


  19. karasco58

    2,070 posts.

    If the $500m sets a benchmark, then Brockman would need to pay a similar amount as they also need to ship around 2.0mt.

    Based on June cash on hand of $2.2b, the additional $500m from Formosa and capex expenditure coming to an end, FMG will really be able to make a sizeable reduction of their overall debt, with or without a sale of the TPI asset.

    Surely the market will soon realise this and rerate FMG

  20. gasman767

    345 posts.

    I think we may have to wait until end Sept. quarter
    for analyst regrades either up or down and with
    it may come reference to Formosa

    The guru on Macro had no less than five articles
    on the iron ore deluge/short opportunities on thurs.

    But he's out in a limb now together with Tom Price
    of UBS who's still in the $70 band wagon. Most
    other analysts have regraded upwards

  21. Matt747

    10,328 posts.

    If Atlas (whose revenue / profit may be significantly upwardly revised - not to mention possible asset sales of thrie own) comes on board, then a similar amount $500M will also be payable to FMG. This amount CIRCA $500M was mentioned in the press about 3 months ago.

    In that situation, selling a % of TPI would be ill advised unless FMG can get really favourable terms.

    With Atlas, Formosa and possibly Winmar and Minres paying their fair share for a ride on FMG rail, I am sure FMG hsa more than ample reason to tell Brockman there is no more room left.

  22. karasco58

    2,070 posts.

    Just a thought

    Wouldn't it be interesting that now FMG is becoming more and more attractive that a Chinese steelmaker or even BHP/Rio make an offer?

    The longer they wait the higher the price. With FMG all the hard work is now done and there are two assets IO and Infrastructure.

    Cheaper to have a go at FMG rather than starting from scratch

  23. Matt747

    10,328 posts.

    No way my friend.

    FMG will one day be a $30 stock in the next multi-year bull run as things over shoot on the upside.

    With Twiggs owning 33%, a deal has to be so good that not even he can reject. There CANNOT be a hostile low-ball takeover. This is why it is so important that FMG shares aren't diluted.

    Once it rids of (say another $4-5B) of the debt, not hard to do in the next 24 months (even w/o TPI sale), then FMG is investment grade stuff. Low cost, low AUD and firm IO price means all the dots are lined up.

    BHP was shipping around 150MTA when the stock price hit $50 last time.

    Soon FMG will be shipping 155MTA where real IO demand has increased drammatically and India will soon step up in the IO consumption league.

  24. Matt747

    10,328 posts.

    BYW, I don't mean to compare the sp of BHP and FMG, they are not relevant.

    A better guide is to work out RIO's market cap (90% of profit comes from IO, think their current shipping rate is 260MTA).

    Remember RIO (thanks to Alcan disaster, Mozambique coal disaster and some other mistakes would be worth a whole lot more now) was a $160 a share stock.

  25. karasco58

    2,070 posts.

    Balanced article emphasising the value in the infrastructure assets, which is the elephant in the room as far as value goes.

    Cash to exceed $3.0b by end of September, debt reduction on the way to sustainable levels, interest savings to flow to directly to bottom line

    Fortescue's debt eased by $1.25bn deal

    From: The Australian
    August 17, 2013 12:00AM

    FORTESCUE Metals Group looks increasingly able to avoid the sale of a stake in its strategic Pilbara infrastructure network after striking a $US1.15 billion ($1.25bn) deal over its unheralded magnetite assets.

    Taiwan conglomerate Formosa will commit $US623 million up front and fund another $US527m in development costs at Fortescue's Iron Bridge magnetite joint venture in Western Australia's Pilbara region in return for a 31 per cent interest in the project. The deal includes a $US500m pre-payment to gain access to Fortescue's port infrastructure, with the windfall to help pay down Fortescue's sizeable debt position.

    The Formosa cash injection, coupled with a rising iron ore price and a falling Australian dollar, is lengthening the odds of Fortescue going ahead with the multi-billion-dollar sale of a minority interest in its Pilbara rail and port assets.

    The iron ore price is at its highest level since October 2011 in Australian dollar terms, while the continuing commissioning of Fortescue's low-cost Firetail and Kings iron ore deposits are reducing the miner's production costs and further improving margins.

    Fortescue chief executive Nev Power and chief financial officer Steve Pearce committed to reducing the company's $US12.1bn debt position after the miner was left exposed by a steep downturn in iron ore prices a year ago. The sale of a minority stake in Fortescue subsidiary The Pilbara Infrastructure, which analysts have estimated could fetch about $2bn, represented a key plank of that plan.

    However, rising iron ore prices helped Fortescue swell its cash position by $US700m to $US2.2bn during the June quarter. Iron ore prices have improved further since then, while the $US500m port pre-payment means Fortescue's cash position could break through $US3bn by the end of September.

    Credit Suisse analyst Matthew Hope said he assumed the infrastructure sale would not go ahead. The Formosa transaction was a "great deal" for Fortescue, he said, with the miner's debt reduction issue now less pressing.

    Mr Power would not be drawn on what impact, if any, the Formosa deal would have on Fortescue's hunger for an infrastructure deal, saying the two were "completely separate" and repeating his increasingly well-worn line that the company would proceed with a deal on TPI only "on the basis we can get full market value for those assets".

    Magnetite assets such as those at the centre of the Formosa transaction have a comparatively poor history in Australia, and analysts attributed little to no value to Fortescue's interest in Iron Bridge. Citic Pacific's Sino Iron magnetite development is hopelessly over budget and behind schedule, while Gindalbie Metals' Karara project has struggled to hit targets and become cashflow positive.

    The Formosa deal means the costs of developing the first stage of production at Iron Bridge will be fully funded without Fortescue having to contribute any cash.

    The first stage of development will cost an estimated $US340m and involve trucking 1.5 million tonnes of iron ore a year to Port Hedland. Fortescue's share of that production will be more than 900,000 tonnes a year, a negligible amount in the context of the miner's annual production target of 155 million tonnes but at no cost to Fortescue shareholders.

    Credit Suisse's Mr Hope told The Weekend Australian the Formosa deal reinforced the value of holding established iron ore rail and port facilities.

    "It just shows that all the value in these projects is in the infrastructure," he said. "It's not the only magnetite that's for sale in Western Australia but this is the only one getting the deal because they've got the infrastructure."

    Yesterday's announcement also included an off-take agreement to supply three million tonnes a year of iron ore production to a steel plant Formosa is building in Vietnam. That contract will represent Fortescue's first long-term sales agreement to a destination other than China.

    Shares in Fortescue closed down 17c at $4.03.

  26. Buy buy,

  27. billcan

    974 posts.

    Moneymaker,I like it! A completely sentiment driven statement,hehe.

    The sentiment however is extremely well placed in my view. Like Farmboy,I have observed FMG management over the years.
    The latest Formosa deal is just another of those brilliant left field deals that Forrest has managed to land over the years when under intense,at most times,unwarranted attacks.
    Looking back,the cornerstone Harbinger funding was followed by the consolidating Leucadia deal and this was followed by Hunan Valin funding package. Last year we saw the brilliant JP Morgan led bond restructure.

    Most management would not be capable of a single company saving move,I can think of several companies in this group.
    $3billion cash reserve at the end of September quarter would seem a bit low if IO continuies to hold up at these level. The total cost of production now should be around ~$75/t and the profit margin now could be easily over $50/t.Given that they could be shipping around 30mt for the quarter,the profit for the quarter could top 1.5b.
    Adding this to 2.2b and the 500m coming via Formosa,we could see the cash balance nudge 4b at the end of September as most major spending has been account for.
    So it's also a very strong buy in my opinion.

  28. Matt747

    10,328 posts.

    If that's the case perhaps a small dividend is even possible.

    If you recall we received a modest dividend prior to the scary episode last year when our capex spending was at it's highest and cash on hand very low.

  29. bsumisu

    1,909 posts.

    By looks of the sp reaction to the news seems it was very positive? O.o

  30. farmboy

    7,247 posts.

    Two points.

    1. I definitely think that dividends will resume at the first prudent opportunity, consistent with management objectives. The reason is that Andrew Forrest said a long time ago that shareholders will be rewarded ASAP. Another of his simple statements that are often ignored because other companies say the same thing and don't follow up. But that is the very point I often make, Andrew's quiet statements are ALWAYS followed up. Like the one he said about shareholders' interest will never be diluted. Most companies would have diluted last year when the pressure was on, to the shorters delight and regular shareholders' horror. It didn't happen and I was not a bit surprised.

    2. Tying Friday's price action to the announcements of recent days is a long bow. The Formosa and other deals are of long term effect. Further strengthening the company and cementing its future. The sentiment pendulum swings from financials to materials and back again every few days, in line with the US market. The deals like Formosa just put a stronger and stronger floor under FMG.

    3. Despite the interminable 'the-boom-is- over' nonsense from on high, news articles today talk of rising demand for copper and other metals. I think too many amateurs have been listening to the politicians and other 'experts with an agenda'. In the real world, demand volume is ever-increasing.

    I have a suspicion that we are in one of those rare periods when fashionable negative press is diverting amateur investors' attention from what is really happening.

    Its always very easy to get out of synch, and very hard to get back in synch.

  31. karasco58

    2,070 posts.

    Irrespective of any deals announced, even ones that are positive such as the Formosa JV, the market is only interested in debt reduction.

    Only when the high level of debt is reduced, will the SP increase, the high level debt is a much bigger issue than the IO price going forward.

    Reduction in debt will induce institutional investors to buy in and therefore, the SP to stabilise and increase. The market has been waiting for news relating to a partial sale of the infrastructure assets, with the funds to be used to repay debt; this has not happened and possibly won't eventuate.

    I do agree, however, that the cash position is very positive at $2.2b as at 30 June 2013 and increasing daily, add the Formosa deal and by the end of September as other posters have commented, cash on hand will exceed $3.0b

    How much of this will be used for capex, debt reduction and possibly a dividend payout is uncertain at this stage.

    We will get a clearer picture hopefully when the 2013 financials are released this week.

    We should all take note that up to $7.0b is due to be repaid by 2017, if IO prices hold up, with or without asset sales, this will be achievable.

    I also believe that more deals relating to rail and port access will eventuate and be announced shortly, in particular, a deal with Atlas Iron.

    If FMG solely concentrates on reduction of IO production costs and debt reduction, our investment in FMG will be rewarded.

    I am concerned that the share price increased to over $4.40 last week and today fell below $4.00, even after the Formosa deal was announced that's a 10.00% decrease; the SP continues to be every volatile.

    FMG announces a terrific deal, IO prices are still very high but the SP drops by 10.00% , this makes no sense. I can only assume that the high debt level is still the culprit and needs to be addressed ASAP.

  32. farmboy

    7,247 posts.

    I'm not at all concerned by the share price moves. A look at any chart over a year or more will show many similar moves. I agree it makes no sense, but most of the time the market does not make sense.

    There are outright spec stocks that trade on whims, there are mature stocks that trade on fundamentals more or less, and some in between. FMG is one of those, pushed and pulled by the spec traders, and supported by the fundamentalists.

    Today it is moving in tandem with its big mates, its just the market, not at all specific to FMG. We are always at sixes and sevens on Mondays without any lead from Dad.

  33. karasco58

    2,070 posts.

    Article onn June 2013, spot on

    As FMG flirts with major support levels today (and in the name of balance), here is a note from JPMorgan arguing upside:

    1) Valuation. As we highlighted in our recent note, FMG is trading on a FY14 PE of 3.5x, with around 50% upside to NPV. We acknowledge FY14 is the peak earnings year in our forecasts, but even at long term assumptions beyond FY18 (80c AUD / US$80/t iron ore) FMG is on 5x.

    2) Costs trending down. As FMG ramps up the Solomon mining hub with significantly lower strip ratios (2:1 long term), costs should be well supported below US$40/t, particularly with economies of scale benefits.

    3) Production ramping up, projects on track. FY14 production guidance of 127-133Mt @ US$38-40/t C1 costs was impressive in our view, causing consensus upgrades to eps, and highlighting projects are on track.

    4) Growth capex rolling off. We estimate that FMG will have spent the bulk of its growth capex by the end of Sep 13, coinciding with the 40Mtpa Kings project ramp-up (US$6.3bn in FY13, dropping to US$1.9bn in FY14).

    5) Free cash flow improving. On our assumptions, FMG is already free cash flow positive. We estimate ~US$2bn FCF in FY14, which should help reduce net debt of ~US$10.7bn (including leases).

    6) TPI sell-down. The sale of a minority stake in FMG’s infrastructure has the potential to provide a cash injection to improve the company’s capital structure. In our view, a deal would be taken positively, with the stock unlikely to react materially to any news about a deal falling though.

    7) AUD falling. As the AUD continues to slide down, FMG experiences material cost relief. Every 1c move adds about US$34m (1% ) to FY14 npat.

    8) Iron ore prices look to have stabilized. With Chinese iron ore inventories at circa 20 days, we don’t expect further de-stocking, which is supportive of iron ore prices. Further, current prices appear to be supported around the marginal cost of China’s domestic iron ore production.

    9) Gearing reduces materially over the next 2 years. FMG does not have any debt repayments due before Nov 2015. Even without the TPI deal, we predict gearing to reduce to 51%/40%/30% in FY14/FY15/FY16, with interest cover a healthy 7.0/7.2/8.3x.

    10) Long term EBITDA margin ~30%. At long term prices of 80c AUD and US$80.

    My line remains that even with a dollar-assisted margin expansion, all of the major producers want to see FMG go down and will endure short term pain to see it happen.

  34. karasco58

    2,070 posts.

    Interesting take on recent large volumes traded in FMG.

    The world's biggest mining investor has given a clear signal as to where it believes the iron ore price is headed, selling off a healthy portion of its iron ore exposure in recent days.

    Funds manager BlackRock sold down close to $60 million worth of shares in iron ore stocks on Thursday, in a series of transactions that coincided with the iron ore price suffering its biggest fall since June.

    Australian pure-play iron ore miners Fortescue Metals Group and Atlas Iron were the main targets, while smaller parcels of shares in Rio Tinto and Brazilian miner Vale were also sold down.

    BlackRock sold 10.8 million Fortescue shares – more than 10 per cent of its stake in the miner – for close to $40 million.


    That sale came ahead of Fortescue revealing a joint venture with a Taiwanese steel firm that was roundly applauded as a good result for the miner.

    BlackRock also sold down close to 6 per cent of its stake in Atlas, and smaller stakes worth millions of dollars in both Rio and Vale.

    While BlackRock retains significant shareholdings in all four companies, the sell-down adds fuel to the recent debate over whether the iron ore price will repeat last year's spring slump, which saw it plummet to $US86 per tonne in September 2012.

    A surge to $US142.80 in recent weeks has prompted some miners and investment bankers to speculate that there won't be a spring slump this year, particularly given iron ore inventories in China remain low.

    The view is not shared by UBS commodities analyst Tom Price, who believes Chinese steel makers will soon start curtailing production which will translate into weaker demand for iron ore.

    Mr Price has predicted the price will fall as low as $US70 per tonne for a few panicked days between now and the end of October.

    BlackRock's stake in BHP Billiton – a company that also counts iron ore as its biggest money spinner – remained unchanged, which may be a nod to BHP's more diversified portfolio.

    BHP will report its full year results for the year to June 30, 2013, on Tuesday, and is tipped to report an underlying profit of about $US12.6 billion.

    Investors will look for guidance on whether BHP intends to push ahead with spending on the Jansen Potash project in Canada, and also for a further update on the miner's efforts to cut costs across the business.

    Read more: http://www.smh.com.au/business/blackrock-sells-down-iron-ore-miners-20130819-2s6id.html#ixzz2cOgfP01d

  35. pear

    805 posts.

    Hi Karasco

    I would like to point a furfy that every body is making (started by the company itself) in that costs go down because of the falling Aus $. This is rubbish. Costs are incurred in Australian $. They are paid for in Australian dollars. Therefore they cannot be impacted if the dollar drops. In fact, indirect costs such as interest which is payable in US$ will increase. But there are no falls.

    The company reports in US$. (Why is beyond me. Still a complex of being Australian I suppose and lack of pride in your own country.) So when the Australian Costs are translated into US$, voila costs have come down compared to prior periods. Rubbish!

    The worrying thing is in what currency are we selling to the Chinese? If it is in US$ then we are OK. But I fear that may no longer be the case since the last trade mission to China when the direct exchange between China and Australia was canvassed. if this has happened, than i would say that we are cactus. A huge debt denominated in US$ requiring a larger service requirement and the debt going up in Australian $ every day. Would be nice to know. without this knowledge we are investing blindly.



  36. billcan

    974 posts.

    Pear,don't get your knickers in a knot.

    All of FMG accouting is done in US dollars ranging from sale price to interest payment. So movements in exchange rate do not impact on the proceeds of sales nor interest payable.
    However as the mine workers are paid in Aussie, the labour cost component in US terms drops. There is no furphy here.

  37. pear

    805 posts.

    Hi Billican

    We are well aware of that. and that is exactly my point here.

    The furphy is that costs are falling. They are not.

    But you missed the most vital part of my post. Do you know for a fact that since the trade mission to China, FMG is still selling to China in US$? I repeat, if they are not, FMG is cactus.



  38. Matt747

    10,328 posts.

    ...That sale came ahead of Fortescue revealing a joint venture with a Taiwanese steel firm that was roundly applauded as a good result for the miner....

    That's good timing :)

    Blackrock bought a ton of AGO at $3 - $4 becoming a substantial holder and sold the bulk of them at around $1+ over the last 6 months.

    Maybe they were seriously spooked by the Chinese (using the leadership change last year as the excuse) to pull off the buyer boycott that they threatened back in 2010 which has now blown up in China's face (as it reinforces the fact they can't dictate pricing for more than a few weeks and that a huge potential supply in the next 2-3 yeras has now vapourised thanks to the destruction of confidence - further strengtening the Big4 (FMG included) and yep HIGH PRICES).


  39. harvett

    2,671 posts.

    Pear I think you find that FMG was most excited about using Gillards reform of a direct exchange rate with China for all business. So the answer is no.

  40. pear

    805 posts.

    Hi Harvett

    Is youre answer no, they are not selling in US$?



  41. gasman767

    345 posts.

    Pear. Just read there last quarterly. For every
    1cent drop there cost per ton decreases abt $1.50

    Or for every 1 cent drop they are 37 million better off

  42. gasman767

    345 posts.

    Here is the correct figures.
    C1 costs improved by 17% to US$36.01/wmt in the June 2013 quarter and were US$44.09/wmt in FY13, 9% lower than the prior year. These significant reductions were a result of lower strip ratios, costs savings initiatives and operational efficiencies. The adoption of these measures has delivered total cost savings of US$0.4 billion since September 2012 well in excess of the initial $0.3 billion target. In addition, a further US$0.2 billion of operating costs related to Kings has been deferred into the FY14 year. The US to Australian dollar exchange rate improved from US$1.04 in the March 2013 quarter to US$0.99 providing a US$1.89/wmt C1 reduction in the June 2013 quarter.
    Given the results above and the recent devaluation of the Australia dollar, C1 guidance for FY14 has been revised to between US$36/wmt and US$38/wmt. This guidance is based on an exchange rate of A$0.95. Approximately 70% of operating
    costs are denominated in Australian dollars which represents an impact on C1 of US$0.25/t to US$0.30/t for every one cent movement in the exchange rate.

  43. farmboy

    7,247 posts.

    In the announcement on 16th August, it was mentioned that Formosa is building a 22mtpa steel mill in Vietnam. It will be the largest project of its kind in the world and the first of six blast furnaces.

    Spec miner HAZ res. is a small tungsten explorer that is constructing a ferrotungsten plant in...Vietnam.

    It has acquired a 60% interest in a Hong Kong based tungsten products company. A large steel mill in Vietnam that will be using large quantities of tungsten from Australia.

    HAZ has already paid back some debt ahead os schedule, which is not the actions of a company under any stress. Its cap is small, which means that any serious interest would have a very positive effect.

    HAZ hit 3.8 cents today, a year high by about 10%, on much higher volume than usual.

    I do own some HAZ, but thought it was relevant to the FMG thread in view of the Vietnam connection.

    And it is a spec, so caveat emptor

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