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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.