Good Morning,
Fortescue Metals Group (FMG) finally hit the $2 a share not
seen since the financial crisis. FMG have debt, expanding into a saturated
market and are almost 'begging' the sector not to oversupply.
The sheer desperation hasn't boded well for their
shareholders or the iron ore price. Being near 90% complete and operational
towards full ramp up to full production. FMG will survive despite thin margins
and large debt repayments to make.
There's a number of articles running in Australia that are
misguided and factually in accurate, playing off the woes in the industry.
Amazingly the market preferred to give credence to these views rather than the
facts.
FMG recently had their half Year Results (2015) and for those with a modicum
of intelligence would have realised the statements about debt, production costs
and viability are not just inaccurate, they're grossly wrong.
Even allowing for Gross Debt at circa $9.5 far from the
$10.5+B suggested, FMG aren't down and out yet. There would have to be a
consistent period below $35/t to materially impact upon the company.
Assuming a lower oil price continuing through to 2017 and
iron ore not dropping below $48/t, FMG should be able to renew their debt and
continue to make 'voluntary' payments. For this bear, one is watching
with for any glimmers of hope for FMG (read as to go long), closing shorts and
considering FMG may just be nearing over-sold (the bottom)
FMG need not only a decent headwind of iron ore prices but a
strengthening of the Australian Dollar (AUD). It’s unlikely to recover in the
short-to-mid-term, requiring a perfect headwind to hit targets, even those
revised.
One shouldn't ignore FMG's sole focus of iron ore, net debt
($7.5b) and total liabilities approaching near $9.5B and negotiations regarding
debt on-going. Their costs have been proficiently managed and debt is being
repaid, CAPEX pared, with a focus on cashflow.
Perhaps more later, pending time!
Atb Fraser
Fraser- I do feel a bit sorry for FMG, even Altas etc al as they have two v v low cost mass producers already flooding the mkt (RIO and BLT) and then in 9/15 Roy Hill, which cost $10bn to develop, come out stream and they plan to hit 55m/tpa and they will tough it out as they have Gina Rineharts fortune to bankroll them until better times. Roy Hill have even put in 340km of rail line and built a new port at Port Helmand. FMG get their debt rollover plan kicked down the road too. They may get through this but many have folded already and there will be a few more victims before the iron ore war/shake out is over.
ReplyDeleteRe EMED- this could obviously backfire in the next 2 days (or 2 minutes) but I add to EMED at 3.3p today and feel that they will get their extra $6m next week and it may even be the unveiling of the long awaited financing package with their 3 major holders all having their own angles, the chances of default for me are low. Its true, EMED will have to place/raise from other shareholders and there will be a discount there but I don't expect it to be too severe, hence my doubling up. So Im long and nailed to the mast now-- now did someone say the boat was a new one, unsinkable and called the Titanic.... lets see :-))
Have a great weekend and Easter break.
Cheers. The Leggie
DeleteAfternoon Leggie, don't feel sorry for any iron ore producer knowing what was known when 5 years ago. This writing has been on the wall for as long I started shorting!
EMED, as I advised in the last placing, the sudden nature and inability to manage it properly, showed no faith. Thus I dumped the lot, I've had a cheeky two or three trades. Simply put, EMED's nature is more of a gamble.
Would you put the money up as a backer, when you have the legal right to acquire for a song? Although with competition, this may save them. Please note, it changes the risks parameters from a going concern, to getting in thanks to competition. What happens if the trio decided to work together privately? Alas, your top up will be clarified with hindsight, although not as risky as some of the crap out there by a long chore, so a viable risk, but not without downside to 1.3 pence.
Some Cryptic, please note Allied Mind's 10 mins into trading again! For the trader savvy bunch they'll be fully aware, that's three times now!
Cheers F
Hi Fraser- thanks for the reply. EMED have had a change of the ranks, twice now, and I feel Alberto is the right man for the job now. They made a release last night of a 3 month extension (to 30/6/15) so the full financing isn't agreed yet but the show goes on... it hints that the financing is v v close now and will be announced in April, given the penalty terms if it isn't. I think the key defence for EMED is that the $30m bridge was always agreed to fund the continuing rebuild of the mine whilst the full financing package was worked through. It appears the 3 major parties (Trafigura, Orion and Red Kite) don't trust each other and so they agreed the loan was unsecured and it appears the work at the mine has been finding additional savings on top of the $50m. Im not sure what the conversion terms were but I guess they don't look too hot now so that could well be one of the sticking points now.
Deletehttp://www.marketwired.com/press-release/emed-mining-public-limited-extension-repayment-loan-convertible-notes-financing-update-tsx-emd-2004552.html
Cheers. The Leggie
Id like to post something share-y....unfortunatley...being "crunched" at with onion rings...dagnamit.
ReplyDeleteI have been wondering as of late have PDG (Pendragon) overpaid for their latest aquisition ? Given their what 46$m (including the freehold granted), for a dealership returning $2.1m a year (or as last year $1.3?) then PDG have just paid £30m for ONE dealership making £1.5m at best a year...
Considering VTU (Vertu) managed to aquire the Farnell landrover businesses for £31m adding just shy of £4m to the bottom line, one cant help but consider that Pendragon have overpaid.
Also given this year new cars are topping out, one has to be mindfull also given current valuations accross the sector that the sector perhaps is nearing "toppy"...
Manufacturers have of course reflected in targets one would imagine the increases in sales, perhaps they have pushed increases further than the actual PARC , sensibly should be. They have their own agenda of course, and by the looks of a major "http://www.reuters.com/article/2015/03/26/us-ford-motor-india-plant-idUSKBN0MM0FE20150326" then more productions on the way and the same market to soak said production into.
One wonders how far manufacturers can push the bigger groups without getting a "bloody nose". When the sun is shining, repair the roof...Perhaps thats just me !