FMG: Fortescue Metals Group

[Ferg]

FMG are primarily* an end to end iron ore miner in Western Australia.  They recently announced their FY22 results.  It was their 2nd best result ever behind the FY21 results, but that should be viewed in the context of the windfall iron ore price gains in FY21 of circa US$6b.

Website here: https://www.fmgl.com.au/investors

Trailing earnings of A$2.77/share divided into today's ex dividend SP of $16.41 gives a trailing P/E ratio of just under 6.  Dividends for the past 2 half years total A$2.07 nett (or $2.96 gross for those who can use franking credits) for a trailing dividend yield of ~12% nett (or 18% gross).

This is a cash machine with reported gross interest bearing debts of US$5.3b (excl. lease liabilities) and cash of US$5.2b.

*I say "primarily" an iron ore miner but they own the entire value chain from exploration, through extraction, processing, rail transportation, sales and shipping into China.

They are also investing into green energy via FFI Fortescue Future Industries which is building capacity for green hydrogen production, as well as ammonia powered engines and green ammonia fuel production.  There is some chatter on HC this arm of the business may end up larger than FMG in years to come - I won't hold my breath!

Caveat: earnings are highly susceptible to the international iron ore price and the AUD/USD cross rate.  FMG had C1 costs of US$15.91/wet metric tonne (wmt) in FY22 which are forecast to rise to US$18-$18.75/wmt in FY23.  Without a corresponding increase in the average price of iron ore sales in FY23, we will see EBITDA reduce until some of the capital projects currently underway start to deliver.

The market is likely applying a hefty discount to forward earnings.  As they say...time will tell.

https://nz.finance.yahoo.com/quote/FMG.AX/chart?p=FMG.AX

[arekaywhy]

I likey

That last downturn had me back in, and this recent one might be a good point to pick up some more.

[Ferg]

Fortescue recently held an investor presentation.  The transcript of that can be found here:
https://www.fmgl.com.au/docs/default-source/announcements/decarbonisation-strategy-event-transcript.pdf

There is quite a bit of chatter in there about their green arm, Fortescue Future Industries (aka FFI) and upcoming gross* capex of $6.2b which will generate savings of $818m p.a.

*I say "gross" capex given that is the total spend but Dr Andrew Fortescue is adamant the first $3b will be self-funded.

I believe this is the release they refer to in the conference call:
https://www.fmgl.com.au/docs/default-source/announcements/fortescue-announces-execution-plan-for-industry-leading-decarbonisation.pdf

They believe it will save cash and the planet.  Time will tell....

Hopefully fellow investors picked up a few more at recent low prices.
https://nz.finance.yahoo.com/quote/FMG.AX?p=FMG.AX

FMG are currently exempt from the FIF tax regime.

[Ferg]

Not a bad result from FMG.  Nice final dividend of A$1.  Have to get to page 30 to see this is the 3rd best ever profit*

https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvTDYL4gi4wBf0v%2FF0%2BLFiGug%3D

*IOW it's not as good as last year, or the year before that.

How is China steel construction looking?

Disclosure: hold and accumulating on price weaknesses

[Ferg]

Most recent quarterly production report can be seen here:
https://cdn.fortescue.com/docs/default-source/announcements-and-reports/2630041.pdf?sfvrsn=2ce2c380_6
No red flags.  BAU.

In addition to production at the new Ironbridge facility ramping up, there is a massive project coming online in Gabon.  The first shipment will be later this year which is <6 months from pushing "go" which will be an incredible achievement.  There have been political tensions recently, but apparently FMG are all good with political developments there.  Dino Otranto, Mining CEO, talks about Gabon and other things here: https://www.abc.net.au/news/programs/the-business/2023-10-31/fortescue-optimistic-on-china-future-despite/103046754

What is also interesting are the green projects under the new banner Fortescue Energy (previously Fortescue Future Industries).  A lot can be seen here in the analysts transcript:
https://cdn.fortescue.com/docs/default-source/announcements-and-reports/231026_investor-and-analyst-call-transcript_sep23.pdf?sfvrsn=adcc466d_1

In particular, they want to own the value chain (or enter JVs) that will get FMG to true zero emissions by 2030.  They are doing it in a way that has saleable solutions for others in the mining industry.  There is a LOT to unpack but the main points I can see are:

• They have set up an innovation centre in the UK focusing on technical development, testing & prototype production of batteries and zero emission powertrains
• Next year FMG will set up a manufacturing facility in the UK to expand heavy duty battery and electric powertrain production for mining trucks and trains
• They have advanced their production capability and R&D on their own hydrogen electrolyser stacks and are manufacturing their own stacks. They are also developing their own technology to limit supply chain risks
• In addition to procuring diesel electric trucks they are working in parallel on a green hydrogen fuel cell haul truck, and expect to launch that soon
• They have commissioned the production of the world's first ever ship powered by green ammonia, after completing a proof of concept
• Last week they did their first ever banking run with an ammonia powered locomotive where they pushed a loaded train uphill for 100km using a 40/60 ammonia/diesel split.
• They acquired Phoenix Hydrogen Hub in the USA, where they will develop an 80MW electrolyser and liquefaction facility
• Construction of a 100MW solar farm at North Star Junction

All of these green initiatives are being funded by current opex and capex budgets while remaining cash flow positive.  There are a lot of moving parts which is hard to get one's head around.  FMG appear to have employed some very smart people to not only save the planet, but to also provide nice returns to shareholders.  Keep up the good work!

[Crackity]

A story in the AFR caught our attention overnight, with Citi now tipping iron ore to hit $US130 by the end of 2023, not a huge call with the bulk commodity up more than +20% over recent months. They cited further stimulus out of China as the likely catalyst for the move, we agree with them but believe they are a bit late to the party and are still too conservative – importantly, the large-cap iron names are likely to be rerated higher as most analysts are using much lower prices in their valuation models, e.g. UBS is still using a long-term iron ore price to US $85/t, although we note this a long term projection a move towards $US150 on China stimulus might cause a rethink.

We continue to target the $US150 area for iron ore, significantly above consensus analyst expectations.


MM remains bullish on Iron Ore into 2024


Market Matters this AM - $150 a chunky call 🤔


Would be great for FMG and MIN

[Ferg]

A chunky call indeed.

Singapore 62% iron ore chart is here:
https://www.barchart.com/futures/quotes/C0*0

And FMG is within spitting distance of their all time high in July 2021:
https://nz.finance.yahoo.com/quote/FMG.AX?p=FMG.AX

The 2021 SP peak coincided with the peak in Singapore iron ore prices.

And in other news FMG have approval from local Government to connect their green hydrogen & green ammonia project to the electricity grid in Brisbane:
https://www.powerlink.com.au/news-media/agreement-seals-future-hydrogen-queensland

This will enable them to produce 70k tonnes of hydrogen and 400k tonnes of ammonia p.a.:
https://fortescue.com/what-we-do/our-projects/gibson-island

[Ferg]

Others are now making the call for $150/tonne:
https://www.mining.com/web/iron-ore-price-poised-to-hit-150-in-2024-on-chinese-stimulus-analysts-say/

[Crackity]

Others are now making the call for $150/tonne:
https://www.mining.com/web/iron-ore-price-poised-to-hit-150-in-2024-on-chinese-stimulus-analysts-say/

$150ish starts making things like Fenix look real good too 🤔

[Ferg]

$150ish starts making things like Fenix look real good too

Do you know much about Fenix?  A quick search on HC shows lots of optimism....but my guess is with much lower volumes than FMG their breakeven will be a lot higher....so a considerably smaller & riskier version of FMG perhaps?  Or am I missing something?

[Crackity]

Do you know much about Fenix?  A quick search on HC shows lots of optimism....but my guess is with much lower volumes than FMG their breakeven will be a lot higher....so a considerably smaller & riskier version of FMG perhaps?  Or am I missing something?

I'd compare them more to MinRes with their mining services and iron ore strategy. They have only been listed a few years and have over the last year expanded their high grade iron ore reserves and also diversified into logistics ( rail sidings and road trains ) and port holdings ( berths and space at Geraldton). I'm keeping an eye on them as I think it is a good strategy but they are a higher cost iron ore producer so results very sensitive to price....

I also keep an eye on GRR.

No position in either company at the mo......

[Hectorplains]

I'd compare them more to MinRes with their mining services and iron ore strategy. They have only been listed a few years and have over the last year expanded their high grade iron ore reserves and also diversified into logistics ( rail sidings and road trains ) and port holdings ( berths and space at Geraldton). I'm keeping an eye on them as I think it is a good strategy but they are a higher cost iron ore producer so results very sensitive to price....

I also keep an eye on GRR.

No position in either company at the mo......

I have two small, IO speccy stakes:

MGX Mt Gibson Iron in Western Australia have been in production since 2004. The Koolan Island Mine has good purity and a 65.3% average iron ore grade.  They have been disrupted by a fire at their processing plant last year, repairs are now completed so sales volumes should ramp up from here.  They also have the Shine Iron Ore Project sitting out north of Perth. That's been in care and maintenance for two years.   The last drop in iron ore prices made it unprofitable. I'm picking that prices stabilizing at current levels will see it re-opening.   MGX still have their storage facilities at Geraldton port.  Their share price has not yet reacted to the surge in IO prices.


HIO Hawsons are set to mine near Broken Hill.  HIO's goal is to produce some of
the world's highest-grade iron ore concentrate, which reduces the carbon created in steel manufacturing.  Their grades are 70+ and low in impurities.  Green iron ore attracts a premium price and a global shortage is predicted in the years ahead.
HIO's mine will produce 20 million tonnes of iron ore annually over its 20 year mine life.  HIO's project plans were delayed last October they sited increasing costs and deteriorating economic conditions as the reason. They dragged out $9m from holders and institutions in March which will keep the lights on. They need a JV partner to get digging, any news of that should kick their SP back up the hill.

Last IO price run, I lost a good deal of my dough on VMS (Venture) and their pig iron pipe dreams.
 

[Crackity]

I have two small, IO speccy stakes:

MGX Mt Gibson Iron in Western Australia have been in production since 2004. The Koolan Island Mine has good purity and a 65.3% average iron ore grade.  They have been disrupted by a fire at their processing plant last year, repairs are now completed so sales volumes should ramp up from here.  They also have the Shine Iron Ore Project sitting out north of Perth. That's been in care and maintenance for two years.   The last drop in iron ore prices made it unprofitable. I'm picking that prices stabilizing at current levels will see it re-opening.   MGX still have their storage facilities at Geraldton port.  Their share price has not yet reacted to the surge in IO prices.


HIO Hawsons are set to mine near Broken Hill.  HIO's goal is to produce some of
the world's highest-grade iron ore concentrate, which reduces the carbon created in steel manufacturing.  Their grades are 70+ and low in impurities.  Green iron ore attracts a premium price and a global shortage is predicted in the years ahead.
HIO's mine will produce 20 million tonnes of iron ore annually over its 20 year mine life.  HIO's project plans were delayed last October they sited increasing costs and deteriorating economic conditions as the reason. They dragged out $9m from holders and institutions in March which will keep the lights on. They need a JV partner to get digging, any news of that should kick their SP back up the hill.

Last IO price run, I lost a good deal of my dough on VMS (Venture) and their pig iron pipe dreams.
 

You now have an indirect interest in Fenix HP 😎


Iron ore producer Fenix Resources (ASX:FEX) has completed the acquisition of Mount Gibson's (ASX:MGX) Mid-West iron ore and port assets in Western Australia.

Fenix, which has a $196.59 million market capitalisation, has acquired the Shine Iron Ore Mine, 2 on-wharf bulk material storage sheds at Geraldton Port, 2 rail sidings at Ruvidini and Perenjori, and mining assets and obligations at the Extension Hill Iron Ore Mine.

Fenix reports the transaction consideration has been transferred to Mount Gibson, comprising $10 million in cash and 60 million fully paid ordinary FEX shares, alongside 25 million options.

Following the completion of the transaction, Mount Gibson holds about 8.6% of Fenix's issued ordinary shares.

[Hectorplains]

You now have an indirect interest in Fenix HP 😎


Iron ore producer Fenix Resources (ASX:FEX) has completed the acquisition of Mount Gibson's (ASX:MGX) Mid-West iron ore and port assets in Western Australia.

Fenix, which has a $196.59 million market capitalisation, has acquired the Shine Iron Ore Mine, 2 on-wharf bulk material storage sheds at Geraldton Port, 2 rail sidings at Ruvidini and Perenjori, and mining assets and obligations at the Extension Hill Iron Ore Mine.

Fenix reports the transaction consideration has been transferred to Mount Gibson, comprising $10 million in cash and 60 million fully paid ordinary FEX shares, alongside 25 million options.

Following the completion of the transaction, Mount Gibson holds about 8.6% of Fenix's issued ordinary shares.

Heck-orooni, thanks Crackity.  I need to be paying more attention!

[Ferg]

Another "go you good thing" where we have pushed past the high from July 2021.  HC chatter suggests this is not just related to the Iron Ore price but also the green energy initiatives.

https://nz.finance.yahoo.com/quote/FMG.AX?p=FMG.AX&.tsrc=fin-srch