Category: Commodities

A commodity market is a physical or virtual marketplace for buying, selling, and trading raw or primary products. There are currently about 50 major commodity markets worldwide that facilitate trade in approximately 100 primary commodities. commodities can be invested in numerous ways. An investor can purchase stock in corporations whose business relies on commodities prices or purchase mutual funds, index funds, or exchange-traded funds (ETFs) that have a focus on commodities related companies.

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Commodities Trading Ideas & Charts

APA’s Medium-Term Outlook Is Supported by Accretive Expansion Opportunities

Limited regulation, scale, and a superior skills base help it capitalise on gas demand growth and generate competitive advantages that warrant a narrow economic moat. However, gas market reform will weaken its competitive advantages. Fair value uncertainty is medium, as secure revenue is balanced by high gearing and limited transparency over customer contracts.

Infrastructure, primarily gas transmission and distribution, is the core business, generating more than 90% of group EBITDA. The rest comes from part-owned investments and asset management. The investments division owns stakes in smaller gas infrastructure companies, providing solid returns and giving some influence. The asset management division provides management, operating, and maintenance services to most part-owned companies, leveraging APA Group’s skills base to generate good returns outside the regulatory framework.

APA Group’s core strategy during the past decade has been to create an integrated east-coast gas transmission grid connecting multiple gas sources to multiple markets. This is now complete following numerous acquisitions and the firm is progressing a similar strategy in Western Australia, connecting to remote mine sites and towns. Expansion creates economies of scale and synergies from linking pipes together into a network with one manager.

Financial Strength

APA Group is in sound financial health. It carries a lot of debt, but this should be manageable given highly secure revenue. Net debt/EBITDA to fall to 5.5 times in fiscal 2023 as development projects complete and earnings start to flow. The firm’s average interest rate is around 4.8%, down substantially in recent years following the issue of the cheap debt to fund the WGP acquisition and expensive hedges rolling off on other debt. The recent refinancing of medium-term debt should reduce average interest rate to about 4.8% in fiscal 2022. Average debt maturity is long at more than seven years, and 100% of interest rates are fixed or hedged.

Our fair value estimate for APA Group is AUD 9.80 per security. Our valuation implies a forward fiscal 2022 enterprise value/EBITDA multiple of 12.5 times, with a distribution yield of about 5.4%. Expansion projects drive solid EBITDA growth of 4.8% on average for the next five years in our discounted cash flow model, while revenue growth for some existing assets is likely to be soft because of regulatory headwinds, gas market reform and some demand shifts.

Bulls Say’s

  • APA Group owns and operates an excellent portfolio of gas infrastructure assets. Its large footprint ensures it is at least partially exposed to growth anywhere in the country.
  • The east-coast gas grid provides improved reliability, greater flexibility, a wider range of services, and economies of scale over single pipelines.
  • Limited regulation allows stronger returns on investment than regulated peers, particularly from organic expansion. However, gas market reform will reduce its advantage.
  • Strong returns are possible from organic growth.

Company Profile 

APA Group is Australia’s largest gas infrastructure company with an extensive portfolio of transmission pipelines, distribution networks, and storage facilities. It is internally managed and has direct operational control over all assets. It owns minority stakes in a few smaller gas infrastructure companies and manages operations for most of these. The stapled securities comprise a unit in Australian Pipeline Trust and in APT Investment Trust.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Woodside Petroleum operating revenue increases by 31% buoyed by demand for LNG and oil

Investment Thesis:

  • Superior free cash flow breakeven price relative to peers have been generated by quality assets (NWS, Pluto, Australia Oil, Browse, Wheatstone) 
  • Focus on cost reduction and positioning of the business for lower oil price environment
  • Earnings improvement through improving oil and gas prices 
  • WPL well positioned to fulfil increasing LNG demand 
  • Strong balance sheet position
  • Good with free cash flow generation
  • Potential exploration success in Myanmar, Senegal, Gabon. 
  • Change in CEO could either result in some uncertainty around future strategy or it could also be an opportunity to refresh the strategy with a “fresh” set of eyes 

Key Risks:

  • Imbalance in supply and demand in global oil/gas markets
  • Low oil / LNG prices
  • Not meeting cost-out targets (e.g. reducing breakeven oil cash price)
  • Disruptions in production

Key Highlights:

  • WPL reported 31% increase in operating revenue, buoyed by higher realised prices mainly driven by the recovery in demand for LNG and oil
  • Underlying NPAT was up +17% 
  • Board declared an interim dividend of US 30cps (up +15% over pcp), representing a payout ratio of ~80% of underlying NPAT
  • Announcement of merger with BHP’s oil and gas business, which is expected to deliver cost synergies north of US$400m p.a. by leveraging combined capabilities and capital efficiency, creating a higher margin oil portfolio
  • Improvement in balance sheet with gearing declining -110bps over 2H20 to 23.3%, remaining within target range of 15-35% and free cash flow (FCF) was up +18% to $311m.
  • Appointment of Meg O’Neill as the new permanent CEO and managing director
  • Revenue generated by WPL segments are; Pluto contributes 47% of the total revenue, NSW contributes 26%, Australia Oil contributes 14% and Wheatstone contributes 13%.
  • EBITDA generated by WPL segment are; Pluto contributes 49% of the total EBITDA, NSW contributes 24%, Wheatstone contributes 15% and Australia Oil contributes 12%.

Company Description:

Woodside Petroleum Ltd (WPL) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. WPL owns producing assets in the North-West Shelf (NWS) project, Pluto LNG and Australian Oil. WPL is currently developing Browse, Sunrise, Wheatstone, Grassy Point and Kitimat LNG. WPL is currently undertaking exploration activities in Myanmar, Senegal, Morocco, Gabon, Ireland, NZ and Peru.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Ampol Ltd. reports 85% rise in EBIT during 1H21

Investment Thesis:

  • Short term challenges being cyclical in nature when coupled with the impacts of the Covid-19 brings muted outlook for the company in terms of the earnings 
  • ALD operates in the market which offers very high market entry barrier restricting the number of players
  • Replication of the infrastructure and supply chain process is difficult
  • Refinery capacity is set to be exceeded by the regional product growth over the duration of next five years, thereby putting the Lytton refinery business in top notch position
  • Acquisitions would further lead the way towards market expansion
  • Refining to be provided less exposure
  • Significant growth is expected to be delivered during the medium to long term duration by revamping retail/convenience model
  • Management of capital in an efficient manner

Key Risks:

  • Lytton refinery facing operational and incident risks
  • Impact of Coronavirus on refinery margins
  • Continuation of drop in refinery margins
  • Refinery and retail facing competitive pressures
  • Currency movements in adverse directions (USD and AUD)
  • Longer term disruption from Electronic Vehicles (EV).
  • Regulatory risk.
  • Class actions by franchisees or employees (e.g. employee underpayments by franchisees). 

Key Highlights:

  • ALD reported 70.8% increase in 1H21 RCOP NPAT to $205m mainly driven by Fuels & Infrastructure business, which delivered an +85% increase in EBIT largely due to the improvement in profitability of the Lytton refinery and the receipt of the Federal Government’s Temporary Refining Production Payment of $40m
  • Strong balance sheet with high amount of liquidity and proforma leverage of 1.6 times
  • Net borrowings were $735m, i.e. up by 69% over 2H20, reflecting the $300m off-market buy-back during the period
  • Shareholder returns continued with the Company completing $300m off-market buy-back
  • Declaration of a fully franked interim dividend of 52 cps, representing a 61% payout ratio of 1H21 RCOP NPAT
  • A non-binding indicative proposal to acquire Z Energy (a Wellington headquartered fuel distribution and retailing company that owns and manages 330 fuel stations and truck shops in NZ) funded through new debt facilities, proceeds from any divestments and an equity issuance in the order of ~A$600m
  • The segment of Fuels & Infrastructure (ex-Lytton) RCOP EBIT declined 7% to $159m primarily due to a reduction in earnings from Trading and Shipping as the elevated imported volumes in 2020 were replaced by Lytton refinery production in 1H21.
  • Total Convenience Retail segment fuel sales volumes were 2.05bl, +3% higher over pcp (+5% on a like-for-like basis), however, earnings from fuel sales declined due to diesel margins lagging movement in crude prices

Company Description:

Ampol Limited (ALD) purchases, refines, distributes and markets petroleum products in Australia. The company’s products include petroleum, motor oil, lubricants, diesel fuel and jet fuel. Caltex also operates convenience stores, fast food stores and service stations throughout Australia. ALD operates one refinery (Lytton, QLD), 25 terminals, 107 depots and about 2,000 service stations and diesel/truck stops.  The Caltex infrastructure network is a key competitive advantage

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Growth in Aurizon’s Bulk Business to Offset Stagnant Coal

Growth in Aurizon bulk business to offset stagnant coal. Coal prices have recovered but downward pressure is likely to remain on haulage rates and volumes due to intense competition. The coal-haulage market is highly concentrated, with few competitors and a few large customers. Commercial contracts, which are typically five to 12 years in length, underpin defensive revenue with customer commitment to take-or-pay (around 70%), pass-through of rail network access fees, and annual consumer price index increases. These contracts have helped insulate the firm from volatility in coal demand and supply factors to date.

 Aurizon’s non-coal bulk-haulage operations are typically low-margin and extremely variable, with customers based in the volatile agricultural, manufacturing and mining sectors. Aurizon’s iron ore customers are typically higher-cost juniors. The long-term outlook remains challenging for these firms, despite recent iron ore strength, as low-cost majors continue to bring on new supply, despite China slowing. Aurizon’s earnings from iron ore haulage could disappear over the medium term.

Aurizon’s Central Queensland Coal Network, or CQCN, provides essential transport infrastructure for the main metallurgical-coal-mining region in Australia. The CQCN is leased from the Queensland government until June 2109, with competitor access and access charges strictly regulated by the Queensland Competition Authority. Despite being highly regulated and needing large capital investment, the CQCN is a monopolistic rail system that provides Aurizon with highly predictable long-term revenue. Typically, regulated tariffs are the main source of Aurizon’s revenue from the CQCN, with the access undertaking set every three to five years. However, until 2027 network tariffs are set under an agreement with customers.

Financial Strength

Aurizon’s financial health is sound. As of June 2021, gearing stood at 45.6%, up from 37% in 2016 and 30% in 2015.Net debt/EBITDA of 2.4 times in fiscal 2021 is reasonable, and should fall modestly in the medium term in the absence of acquisitions or share buybacks. The firm pays out up to 100% of underlying NPAT as dividends. Further share buybacks are also possible, funded by proceeds from asset sales and debt. Cash flows are relatively reliable thanks to long-term take-or-pay coal-haulage contracts and the regulated rail network business. Capital expenditure has been fairly flat since fiscal 2017 at roughly AUD 500 million each year, mainly comprising stay-in-business capital expenditure. Aurizon has completed large-scale rail network extensions and is focused on cost-cutting. Investment in the bulk division is increasing but free cash flows should remain strong.

Bulls Say

  • Restructuring initiatives should substantially decrease operating costs. 
  • Improving efficiency, essential transport infrastructure, and reasonable level of debt should ensure steady earnings, except in the most difficult circumstances. 
  • Aurizon is reducing overhead costs and improving network efficiency to generate economic returns.
  • The bulk division has good growth prospects, though it is dwarfed by coal-exposed divisions.

Company Profile

Aurizon operates rail haulage of coal, iron ore, and freight, and owns a regulated rail network in Queensland. Bulk export coal haulage from mine to port contributes 40% of earnings. The freight and iron ore segment contributes 10% of earnings and undertakes the rail haulage of bulk agricultural, mining, and industrial products. The rail network, composed of 2,670 kilometres of coal rail network under a 99-year lease from the Queensland government, contributes around half of earnings.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

South32 continue to provide solid returns for the near term

Investment Thesis:

  • Prices of S32’s key commodities are expected to be in moderate to relatively flat range in comparison to FY21 realised prices
  • The company is expected to produce significant free cash flow over the next three years, which would be adequate to support growth and capital management
  • Substantial cash balance would provide flexibility and capital management 
  • Board to expand S32’s capital management program by $120m to $2bn, excluding $252m to be distributed to shareholders  
  • Regular dividends are being paid inspite of uncertainty and volatility   
  • Both Standard and Poor’s and Moody’s reaffirmed their respective BBB+ and Baa1 credit ratings

Key Risks:

  • Key commodity prices decrease
  • Global growth experiencing significant shock
  • Inflationary pressures leading to cost blowouts and production disruptions 
  • Capital management initiatives are not handled by company adequately 
  • Currencies witnessing adverse movements 
  • Acquisition which may negatively impact the value of the organisation

Key Highlights:

  • Despite ongoing challenges put forth by pandemic, record production has been observed in Worsley Alumina, Brazil Alumina and Australia Manganese 
  • Divestment of South Africa Energy Coal, the TEMCO manganese alloy smelter, and a portfolio of no-core precious metals royalties with the aim to reduce capital intensity and improve underlying operating margin
  • Declaration of 2H21 dividend of 3.5cps, fully franked, at a payout ratio of 46% of underlying earnings. An addition of special dividend of 2.0cps was also declared, bringing the total dividend to 6.4cps versus 3.2cps in FY20.
  • Strong operating performance and higher commodity prices drove a +153% increase in underlying earnings to $489m
  • Underlying EBITDA of $1,564m was up +32%
  • Margin of 26.4% up from 21.9% in FY20
  • Underlying EBIT of $844m was up +89% from $446m in FY20, driven mainly by higher prices in aluminium, silver, zinc, nickel partially offset by the lower prices of coal, manganese ore and alumina
  • Higher sales volume of $115m
  • Controllable costs of $238m; offset by change in exchanges which reduced earnings by $185m, and higher electricity costs of ($103m)
  • Allocation of $346m for an on-market share buy-back

Company Profile:

South32 (S32) is a globally diversified metals and mining company. S32’s strategy is to invest in high quality metals and mining operations where their distinctive capabilities and regional model enables them to extract sustainable performance. The regional model means their businesses are run by people from within the region. The company’s African operations are supported by a regional office in Johannesburg South Africa and Australian and South American operations by an office in Perth.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Cooper gas portfolio strategy aims to maximise long-term value while mitigating risks

Investment Thesis

  • Management provides strong FY22 guidance.
  • Sole will result in significant increases in production and free cash flow.
  • Sole’s volumes are mostly contracted out, providing greater certainty at a lower risk of price fluctuations. Sixty-one percent of COE’s 2P reserves (Proved and probable reserves) are undertake-or-pay contracts, with uncontracted gas primarily beginning in 2024.
  • Upside from CEO’s exploration activity Gippsland and Otway Basin.
  • Over 25 years Industry/Developing LNG Project with companies such as BG Group, Woodside petroleum and Santos Ltd which leads by CEO/MD David Maxwell with strong management team.
  • Favorable industry on the east coast gas market – with tight supply could lead to higher gas prices.
  • Recent De- Rating Considered as a Potential Merger & Acquisition activity.

Key Risks

  • Execution Risk – Drilling and exploration risk.
  • Commodity Price Risk – movement in oil & gas price will impact uncontracted volumes.
  • Regulatory Risk – such as changes in tax regimes will adversely impact profitability.
  • M&A Risk – value destructive acquisitions in order to add growth assets.
  • Financial Risk – potentially deeply discounted equity raising to fund operating & exploration activities should debt market tighten up due external macro factors.

FY21 Results Highlights

  • COE achieved record sales and revenue sales volume up +69 percent to 3.01 MMboe and revenue up to +69 percent to $132 million.
  • COE achieved record production of 2.63 MMboe up to +69 percent.
  • COE’s sole gas sales agreement was a significant milestone driving, 2H21 revenue and earnings.
  • Sound balanced sheet maintained with debt adjustments finalized.

Company Profile 

Cooper Energy Ltd (COE) is an oil & gas exploration company focusing on its activities in the Cooper Basin of South Australia. The Company’s exploration portfolio includes six tenements located throughout the Basin. Gas accounts for the major share of the Company’s sale revenue, production and reserves. COE’s portfolio includes: (1) gas production of approximately 7PJ p.a. from the Otway Basin, most of which comes from the Casino Henry gas project which it operates. (2) COE is developing the Sole gas field to supply 24 PJ of gas p.a. from 2019. (3) Oil production of approximately of 0.3 million barrels p.a. from low cost operations in the Cooper Basin. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Lowering Our Fair Value Estimate for Fortescue Post the Massive Dividend

Business Strategy and Outlook 

Fortescue Metals is the world’s fourth-largest iron ore exporter. Margins are well below industry leaders BHP and Rio Tinto, and some way behind Vale, meaning Fortescue sits in the highest half of the cost curve. This is a primary driver of our no-moat rating. Lower margins primarily result from discounts from mining a lower-grade (57%- to 58%-grade) product compared with the benchmark, which is for 62%-grade iron ore. The lower grade is effectively a cost for customers, which results in a lower realised price versus the benchmark. In the five years ended June 2020, the company realised an approximate 26% discount, compared with the benchmark average for 62% iron ore fines.

Fortescue has done an admirable job of reducing cash costs materially versus peers. However, product discounts remain a competitive disadvantage. To this end, the company will add about 22 million tonnes a year of iron ore production from the 61%-owned Iron Bridge joint venture. Iron Bridge grades are much higher, around 67%, which should allow Fortescue to meet its goal to have most of its iron ore above 60%, assuming the company chooses to blend it with the existing products.

Financial Strength 

Our fair value estimate for no-moat rated Fortescue Metals to AUD 13 per share from AUD 15.10 per share previously. The shares have gone ex-entitlement to the final dividend, an unusually large AUD 2.11 per share or 14% of our previous fair value estimate. The latest financial results were astoundingly strong for the iron ore miners, Fortescue included. Rio Tinto generated an annualised return on invested capital from its iron ore operations of more than 100% in the first half of 2021.

Despite being a relatively high cost producer, once product discounts are considered, Fortescue’s annualised return on invested capital for that same half was nearly 70%. This is part of the reason the iron ore price has fallen in recent times, but the price at nearly USD 150 per tonne is still well above the price required for the iron ore majors to make a reasonable return.

Fortescue Metals Group’s balance sheet is strong, thanks to the elevated iron ore price and accelerated debt repayments. Net debt peaked near USD 10 billion in mid-2013, roughly coinciding with the start of expanded production. By the end of 2020, net debt had declined to USD 0.1 billion. The operating leverage in Fortescue, and the cyclical capital requirements, there is a reasonable argument that Fortescue should run with minimal or no debt on average through the cycle.

Bulls Say’s 

  • Fortescue provides strong leverage to the Chinese economy. If growth in steel consumption remains strong, it’s also likely iron ore prices and volumes will too.
  • Fortescue is the largest pure-play iron ore counter in the world and offers strong leverage to emerging world growth.
  • Fortescue has rapidly cut costs and significantly narrowed the cost disadvantage relative to industry leaders BHP, Vale, and Rio Tinto. If steel industry margins fall in future, it’s likely product discounts will narrow significantly relative to historical averages.

Company Profile 

Fortescue Metals Group is an Australia-based iron ore miner. It has grown from obscurity at the start of 2008 to become the world’s fourth-largest producer. Growth was fuelled by debt, now repaid. Expansion from 55 million tonnes in fiscal 2012 to about 180 million tonnes in 2020 means Fortescue supplies nearly 10% of global seaborne iron ore. However, with longer-term demand likely to decline, as China’s economy matures, we expect Fortescue’s future margins to be below historical averages.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Australian Pipeline to offer a whopping dividend of 6%

Investment Thesis

  • Difficult part to replicate is high quality assets.
  • Attractive and Growing distribution yield.
  • Highly credit worthy customers.
  • Currently, the US focuses on assessing international opportunities.
  • Growth through acquisitions.
  • Customers are diversified by sectors.
  • Largest owner of gas transmission pipelines in Australia.
  • Opportunity to grow its renewable business.
  • Management announced their ambition to achieve net zero operations emissions by 2050.

Key Risks

  • Negative market/investor sentiment toward “bond proxies.”
  • Pipeline regulators may make future regulatory changes.
  • The energy sector affects a large number of businesses.
  • Issues with infrastructure, such as explosions or ruptures.
  • COAG’s adverse decision examines transmission costs.
  • Contract terms on existing capacity are being shortened.

FY21 Result Summary

  • Revenue (excluding pass-through) increased +0.7% year on year to $2,144.5m, boosted in part by a partial year contribution from the Orbost Gas Processing Plant.
  • Underlying EBITDA decreases -1.3% over pcp to $1,633million, due to increased investment in strategic development opportunities and capability, higher insurance and compliance cost and softer contract renewals in challenging market conditions.
  • NPAT (excluding significant items) was down -9.6% to $281.8m due to the lower EBITDA and higher depreciation costs from growing asset base. Reported NPAT was $3.7m, impacted by the $249.3m non-cash Orbost impairment charge and $148m in finance costs associated with bond note redemptions.
  • Total capex increased +3.3 percent year on year to $432.5 million (growth capex decreased -1.5 percent to $283.5 million and stay-in-business capex increased +23 percent to $134.6 million), with management expecting organic growth capex to exceed $1.3 billion over FY22-24, up from $1 billion in 1H21.
  • Free Cash Flow of $901.9 million was down -5.7 percent year on year, owing primarily to a one-time distribution and interest earned by APA from its investments in SEA Gas in FY20. Approximately, 6% dividend is offered by Australian Pipeline Trust Group.

Company Profile 

APA Group Limited (APA) is a natural gas infrastructure company. The Company owns and/or operates gas transmission and distribution assets whose pipelines span every state and territory in mainland Australia. APA Group also holds minority interests in energy infrastructure enterprises. APA derives its revenue through a mix of regulated revenue, long-term negotiated contracts, asset management fees and investment earnings.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Adbri’s stock price drops but building boom raises profits

Investment Thesis

  • Macro conditions remains uncertain in key regions.
  • Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk. 
  • Solid balance sheet position provides some flexibility to the Company to pursue growth. 
  • Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
  • Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
  • Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21.

Key Risks

We see the following key risks to our investment thesis:

  • Softer sales volume than expected.
  • Loss of market share to competitors or imports and pressure on pricing. 
  • Softer than expected pricing increases.
  • Higher than expected energy prices.
  • Execution risk in relation to Company’s cost-out and vertical integration strategies.
  • Deterioration of A$ relative to other currencies.
  • Unfavorable weather impacts. 

1H21 results summary

  • Revenue was up +7.4% over pcp to $752.3m with robust demand, particularly on the eastern seaboard, driving higher volumes across all products. Lime pricing declined in accordance with contractual arrangements, while average cement price increased marginally, and concrete and aggregate prices were stable overall. 
  • Underlying EBITDA increased +8.7% over pcp to $133.1m with margins improving +20bps to 17.7%, benefitting from disciplined implementation of cost efficiencies across the Group. 
  • Underlying NPAT of $55m was up +15.5% over pcp driven by improved demand for construction materials supported by increased residential housing activity and infrastructure spending. 
  • Operating cash flow of $76.8m declined -34% over pcp, largely due to the one-off benefit in the prior year of Covid-19 stimulus measures with the temporary deferral of GST and PAYG payments that boosted 1H20 cash flow by circa $30m (measures reversed in 2H20 following payment of the deferred liabilities and were not repeated in 1H21). 
  • Capex declined -8% over pcp to $67.6m and was split between stay-in-business capital of $51.8m and development capital of $15.8m. 

Company Description  

Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Fortescue Metals has established an industry-leading cost position

Investment Thesis

  • FMG’s price discount to the market benchmark Platts 62 percent CFR Index should continue to narrow as its sales mix shifts toward higher grade products.
  • Global stimulus policies, both fiscal and monetary, are beneficial to global growth and FMG’s products.
  • Capital management initiatives include increased dividends and potential share buybacks given the balance sheet’s strength.
  • Exceptional cash flow generation.
  • Management team for quality.
  • Continues to be on the lower end of the cost curve in comparison to peers; with a continued focus on C1 cost reductions, earnings should be supported.

Key Risks

  • Iron ore prices are falling.
  • Cost overruns/production disruptions
  • The cost-cutting strategy is ineffective.
  • The company does not carry out adequate capital management initiatives.
  • There is the possibility of regulatory changes.
  • Vale SA supply returns to the market sooner than expected.
  • Growth initiatives are being postponed.

Operational Performance Highlights 

  • Ore Mined of 226.9m tones, was up by 11 percent.
  • FMG shipped a record 182.2m tones, up +2 percent and sold 181.1m tones up by 2 percent.
  • The average revenue of US$135.32/dmt was increased by +72 percent.
  • FMG saw C1 cost of US$13.93/wmt, increase by 8 percent but remains industry leading.
  • Iron ore Shipment is 180 to 185m tone.
  • C1 cost of US$15.00 to US$15.50/wmt.
  • Capex (excluding FFI) of US$2.8 – US$3.2 billion (down from US$3,633 billion in FY21), including: US$1.1 billion in sustaining capital; US$200 million in hub development; US$250 – US$300 million in operational development; US$180 million in exploration and studies; and US$1.1 – US$1.4 billion in major projects (Iron Bridge and PEC). 

Company Profile 

Fortescue Metals Group Ltd (FMG) engages in the exploration, development, production, processing, and sale of iron ore in Australia, China, and internationally. It owns and operates the Chichester Hub that consists of the Cloudbreak and Christmas Creek mines located in the Chichester Ranges in the Pilbara, Western Australia; and the Solomon Hub comprising the Firetail and Kings Valley mines located in the Hamersley Ranges in the Pilbara, Western Australia. The Company was founded in 2003 and is based in East Perth, Australia.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.