Consensus community valuation
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28-Dec-2021: Their 12-month share price graph suggests to me that the FMG SP has been trying to push through $25 and has failed to do so on a number of occasions in CY2021. Every time it gets there a sell-down has followed, and the biggest of those was down to sub-$15 in Oct/Nov. FMG looks to be heading NE again now, however I don't know how many times it will take for them to break through $25 with conviction. My guess is that we'll know it when we see it because they'll go on to at least $30 in a relatively short space of time when it happens.
I'm not a huge iron ore bull, not by any stretch, however I very much like the new direction that Twiggy is taking this company, particularly the Clean & Green Hydrogen, and his carbon neutral target - by 2030 - see here: Climate Change and Energy | Fortescue Metals Group Ltd (fmgl.com.au)
I think that Andrew ("Twiggy") Forrest has the billions and the willpower and passion to make this happen. He has always set the bar high, with difficult targets to achieve, but he's achieved them all so far, and I'm backing him to continue to do so. He's a man who wants to leave a positive legacy behind and be remembered as somebody who did the right thing and did what he could to improve the world for future generations. It's a powerful combination, having lots of money and lots of passion, and the willpower and determination to achieve things that matter. He also has a wife that is 100% behind him, or rather alongside him - they both want to create a lasting positive legacy and they're doing a pretty damn good job so far.
I understand of course that people doing good things partly or mostly via their control of a public company isn't always going to also provide the best investment option for ordinary retail investors. However, in this case, the vast majority of Twiggy's own wealth is via ownership of FMG shares (he owns nearly 37% [36.74%] of FMG through his family company, Minderoo, and FMG is a now a $59 billion company, so Twiggy's FMG shares are worth over $21 billion) and I therefore conclude that it's in his own best interests for him to keep the FMG share price as buoyant as he can.
A decent FMG share price underpins Twiggy's ability to do all of the stuff that he does outside of FMG with his extensive philanthropy and other business ventures. I doubt that he would do anything to sink the company's share price, certainly not intentionally. I expect him to continue to promote FMG as a positive investment at every opportunity, as he always has, and to always seek to add value at FMG rather than lead them down a path that ultimately results in lower profitability and lower total shareholder returns.
Those reasons also underpin my belief that FMG is likely to continue to provide a very good source of fully franked dividend income, as they have over the past year. This is also needed by Twiggy for his philanthropy and other business ventures, because he funds them primarily from his FMG dividend-derived income.
Regarding iron ore specifically, because let's not kid ourselves, iron ore prices will continue to have a huge impact on investor sentiment and therefore the share prices of iron ore producing companies: I am happy that FMG now have got their C1 cost/wmt (wet metric tonne of iron ore) all the way down to around US$15 to $15.50.
That's their latest guidance, given at their AGM in November, and it's also interesting to note that they have now provided FFI (Fortescue Future Industries) expenditure guidance as well. There have been some commentators suggesting that FFI (which includes the foray into Green Hydrogen power) was going to drain all of the iron ore profits out of FMG leaving shareholders with very little in the way of income or capital growth. Clearly with a targeted FY22 capital expenditure (capex) of US$400 to $600 MILLION for FFI, compared to their iron-ore-related FY22 capex target of US$2.8 to $3.2 BILLION, that is not going to be the case. They are not throwing the farm at this. They are moving into clean and green in a sensible and measured way. In other words, it is going to happen, but it won't happen overnight.
Most people here would be familiar with the flywheel analogy, and here's how FMG see it applying to them:
Additionally, they use a similar method to explain their plans for FFI:
I do not usually take much notice of broker consensus calls and expectations, or their price targets, but I often get interested when most brokers are neutral or negative on a company whose share price is rising, particularly when I personally believe the company has some strong tailwinds, great industry position, and excellent management. Here are the most recent broker calls on FMG according to FNArena.com:
As you can see, we have 4 hold/neutral calls, 2 sell/underweight calls, and only one buy/outperform, which is from Macquarie. That is of course just the 7 brokers that FNArena.com covers. Here's the broker/analyst sentiment according to Commsec:
So Commsec (or their data provider at least) believe there are only 3 positive views on FMG from the 17 brokers that that cover FMG (that are covered by Commsec's data provider).
Not exactly a market darling. Yet the share price has been rising since early November. My personal view is that the brokers and analysts are seeing better shorter-term opportunities elsewhere, and are not really looking at FMG as a 5-year-plus investment. Over 5 to 10 years I think I'll do very well in FMG, in terms of total shareholder returns (capital growth plus dividends), so I bought FMG in two of my real life portfolios during the first half of December at prices ranging from $17.22 to $19 per share. I was buying them at $17.22 on December 3rd, bought more at $18.01 on the 10th, and bought more on the 20th at $19/share. Averaging up for a change, instead of averaging down.
I think broker views and broker calls will likely continue to mostly be behind the curve with FMG, and they will try to play catch up, but may rarely get ahead of what the share price is doing. It seems to me that most people who hold FMG are not doing it based on broker calls, but are instead doing it because they personally believe in the man, his vision, and the company that he has built, and its future prospects.
Not all, but most. And I could be wrong, but that's the impression I get.
OK, from a fundamental POV, have a look at their key metrics, particularly profitability:
Sources: Above: FNArena.com, Below: Commsec (https://www2.commsec.com.au/)
They are HIGHLY profitable!
While there is always commodity-exposure-risk with any miner, especially a miner that only mines a single commodity at this stage, this company has zero net debt. Gearing (ND/E) = negative, i.e. No net debt. Cash on hand of US$6.9 billion and net cash of US$2.7 billion at 30 June 2021. $2.7 billion is a handy net cash buffer to have, especially when your costs are so low, and your margins are so high. To put that into some perspective, FMG could easily survive a prolonged period of unprofitability if that was to occur (something that would drive most smaller companies to the wall), however for FMG to NOT be profitable, the iron ore price would have to half, and then halve again, and then halve again, and then drop a bit further (i.e. reduce by over 90%) and even then they would likely be at around breakeven if not barely profitable.
As long as iron ore prices stay above US$20/tonne I think we're good.
Here's how FMG currently view iron ore demand:
Obviously, Vale's issued (in Brazil) have a fair bit to do with the supply constraints they mention there, and I've been expecting Vale to get on top of those issues for a while now (like, over a year) and they really haven't. But they will, sooner or later. However, I'm not getting too caught up in the big (macro) picture here, I'm looking at FMG as an investment regardless of the commodity that they are involved in. And I'm not trying to predict the supply/demand outlook too much. They are VERY profitable, are spitting off a LOT of cash, much of which is being returned to shareholders, they have a VERY solid balance sheet, and exciting plans for the future.
They will remain highly profitable at MUCH lower iron ore prices. That's the main point that sets them apart from a lot of other miners.
Check out their latest (November AGM) presso here: fortescue-agm-presentation-2021.pdf (fmgl.com.au)
And their plans for establishing a Green Energy manufacturing hub at/near Gladstone in Queensland here: 2279422.pdf (fmgl.com.au)
And their CEO transition announcement here: fortescue---transition-and-leadership-change.pdf (fmgl.com.au)
That is regarding their CEO position, which is not a thesis breaker IMHO, because Andrew Forrest will continue to be the main driving force behind the company and he is remaining in his Chairman role. He is listed as being a Non-Executive Chairman, but make no mistake, as the man who founded the company, built it up to what it is today, and still owns almost 37% of it, he isn't just along for the ride, he is steering this ship.
Twiggy is now Dr Andrew Forrest, due to his PhD in marine science – see here: The doctor is in: 'Twiggy' Forrest gets PhD in marine science (smh.com.au)
He has been passionate about cleaning up the world’s oceans and protecting marine life since he was a child (see story linked to above).
Further Reading: Australia's Fortescue sets sights on becoming world's first supplier of green iron ore | Reuters
Fortescue Future Industries (ffi.com.au)
Presentations and Webcasts | Fortescue Metals Group Ltd (fmgl.com.au)
FMG’s Solomon Hub in Western Australia
FMG’s Iron Bridge Magnetite project in Western Australia
One of FMG’s trains hauling iron ore to Port Hedland for shipping to China
One of FMG’s iron ore haulage vessels (ships)
“Back at the Ranch”: When Dr Andrew (“Twiggy”) Forrest AO made his mining fortune, he bought back his family’s farm. He has since become one of the largest landholders in Western Australia.
Disclosure: I hold FMG shares in real life.
26-March-2023: Update: Another one marked as stale...
The investment thesis in a nutshell is that Twiggy has turned FMG into one of the world's lowest cost producers (3rd lowest cost in the world I believe, behind only BHP & Rio, and ahead of Vale, although I haven't checked on that recently), and at current iron ore prices, FMG are VERY profitable. The Iron Ore price would have to fall a very long way to put FMG's profitability under serious threat.
The fact that the company is churning out good profits and returning a good chunk of that cash to shareholders in the form of dividends is enough on it's own to form a decent investment case for FMG, but the thing that interests me most about the company is FFI - Fortescue Future Industries, and the push to develop green hydrogen and other alternative green energy sources and to turn FMG into the world's first carbon neutral iron ore miner. FFI will burn cash for years until they achieve some commercial success with these new technologies, and that's the risk, however the upside potential of being at the forefront of this should not be overlooked. To date, Twiggy shows no signs of wanting to burn up all of FMG's iron ore profits by going too hard into green hydrogen and the rest of it. He's being quite measured in the way he is going about it, in my view, as underlined by these generous dividends we keep receiving, despite the FFI expenditure.
So, $30/share as a price target (PT, a.k.a. TP: Target Price) might seem a little high, but if you look at how FMG has trended in prior years, it wouldn't take much for them to get there. Just better sentiment around iron ore, the iron ore price, and FMG in particular. It might not happen this year, or next year, but they're going to $30 and beyond at some point. This is a very well run company, and Twiggy Forrest is no mug, he's a very smart and passionate operator. Never underestimate a billionaire with heaps of passion who's prepared to put his own money where his mouth is.
Disclosure: I hold FMG in two of my main real life portfolios as one of the largest positions - it's currently the second largest position in both portfolios, which includes my SMSF (where NST is the larger position). In the other portfolio, Codan (CDA) is the larger position. FMG is also my third largest position here in my Strawman virtual portfolio. (CDA and NST are the larger positions)... So, yeah, I'm a fan.
Thursday 23-Nov-2023: Update: Marked as stale once again - and no change to my $30 price target once again, and they're closer now than they've been since 2021:
Just above $25/share does seem like a strong resistance level that they can't seem to break through - so far they have not remained above $25 for long - they dropped back below $25 again today after closing above $25 for the previous 6 trading days.
Not a bad 5-year return, eh?! Compared to the XJO in particular which many fundies use as their benchmark index - the S&P/ASX200 Total Return Index - which includes all dividends and distributions reinvested back into the underlying companies; the FMG return there does NOT include dividends, and in recent years there have been some nice dividends(!) which would add significantly to the +578.31% return shown there for FMG for the past 5 years. Note - those returns are not per annum, they are the total return over the 5 year period.
But yeah, I'm guessing they'll punch through that resistance level and go on with it at some point - so happy to keep a $30 PT for now.
There have been some orange flags lately (not red ones), including Twiggy and Nicola announcing that they've separated - and that there will be no change to the way they manage FMG, their private family investment group, Tattarang, or their Minderoo Foundation, and that they have no immediate or current plans to sell any of their FMG shares. There is also the number of KMP at FMG who have left in recent months - their CEO (Fiona Hicks), their CFO (Christine Morris), Fortescue Future Industries Director, Guy Debelle, and Laura Woodall, the long-term right-hand woman to successive chief executives.
There have been rumours that Andrew "Twiggy" Forrest is a difficult man to work for and that he doesn't like to be argued with, especially by his own employees. Speaking to 9News on 30 August, Dr Forrest shed some light on the shock departure of Ms Hick, less than six months into the CEO role and a mere 48 hours after the company’s 20-year anniversary celebration at a Pilbara mine site. Dr Forrest was asked whether Ms Hick left of her own accord or if she was pushed out. “Fiona was given a choice to make and she chose, so I’d say she wasn’t pushed,” Dr Forrest told 9News. At that point the company hadn't yet announced who would be replacing those people.
Source: https://miningmagazine.com.au/fortescue-mass-exodus-continues/
A few days later, in early September, Andrew O’Dowd, FMG’s GM of Operations Planning handing in his notice. He was the fifth exit of a key senior lieutenant at Fortescue within a week.
That article lists 17 people who have left FMG, Tattarang, Minderoo or Wyloo (controlled by Tatarang) since 2021, however those entities together employ thousands, including maybe one hundred or more executives, with perhaps 40 or 50 of those being KMP/senior executives, and some of those 17 (mentioned in that "West Australian" newspaper article) were not particularly high up (not senior management/KMP). Also, many of the moves may have been due simply to better job offers or new opportunities/challenges elsewhere.
Still, the terms "revolving door" and "exodus" were being used in relation to FMG quite a bit in August and September - particularly by the media - and it's not a good look. And I would call it an orange flag.
But not red flags. And the market has sold them down on each negative news item - and then bought them right back up again. I've trimmed my FMG positions in recent weeks but they remain large positions in my real life portfolios. FMG has become a smaller position here in my SM virtual PF but only because I've sold most of them to buy some MIN and DVP which I believe are likely to have more near/mid-term upside from current levels. But I remain adequately exposed to FMG in real life. They've been an excellent performer in terms of total shareholder returns (TSRs) - more on that a little later...
And then there's the iron ore price:
Source: https://tradingeconomics.com/commodity/ironore62
On the rise, yes, but not looking like we're going to see a 2023 peak of over US$150/tonne like we did in 2022 or prices over US$200/tonne that we saw in 2021.
It looks like US$130 - around where it is now, is the year high - to date, and if it put on another US$10 or $20, that would be a nice Chrissy Present.
Of course, FMG has some of the lowest costs now of all of the majors, way down at US$17.54/wmt (wet metric tonne) in FY23 (US$15.91/wmt in FY22). Their average realised price received for their iron ore was US$94.74/dmt (dry metric tonne) in FY23 (US$99.80/dmt in FY22).
Their FY24 Production Guidance is for 192 - 197mt, including approximately 7mt from Iron Bridge (100% basis) at a C1 cost for Pilbara hematite of US$18.00 to US$19.00/wmt and a C1 cost for Iron Bridge high grade magnetite concentrate of US$45/wmt (Iron Bridge production will sell for higher prices because it will be up to 67% Fe; their Pilbara hematite has traditionally been below 62%).
Perhaps you can see from those numbers why I say that FMG can not only survive but indeed continue to thrive with substantially lower iron prices than what we have now, and if the iron ore price instead goes up, happy days!
Source: https://fortescue.com/investors/results-and-operational-performance/fy23-full-year-results
And: https://www.syfe.com/au/learn/fortescue-metals-group-the-story-so-far-in-2023/ [27-July-2023]
Brazil's Vale claimed in 2021 to be the World’s most efficient iron ore producer with long-term C1 costs estimated at $15/tonne (although closer to $30/tonne when adding transportation costs to Asia’s main ports according to ratings agency S&P) however it is my understanding that Vale was hit particularly hard by the Covid pandemic in Brazil and their costs have increased.
Just on costs:
- C1 cost represents the ‘direct’ production costs of iron ore and is a commonly quoted figure. However, it does not represent the full cost of production;
- Delivered cost includes the C1 cost, plus shipping, royalties and overhead costs; and
- All-In cash cost is the delivered cost, plus interest and sustaining capital expenditure.
And on Wet vs Dry Ore (wmt vs dmt):
- Production is usually quoted in terms of wet metric tonnes (wmt), and the iron ore price is based on dry metric tonnes (dmt)
- To adjust from wet to dry tonnes, an 8% reduction is applied to the wet tonnes to adjust for moisture content
And I should point out that the iron ore price chart above shows the Platts 62% Benchmark price and FMG have been paid anywhere from 70% (in 2021) to 86% of those prices (in 2022). This is because they have been producing iron ore below the 62% grade, however they have spent billions developing and commissioning their Iron Bridge Project, which is designed to deliver magnetite of up to 67% grade, and Iron Bridge achieved first concentrate loaded on ship in July (2023).
The updated life of mine C1 cost attributable to Fortescue for Iron Bridge is estimated at US$45/wet metric tonne, with C1 cost guidance for all of their other iron ore production in FY24 to be between US$18.00 - US$19.00/wmt.
Still low cost, and there's also more to FMG now that just iron ore too.
Fortescue Energy
- Fortescue formalised the structure for Fortescue Energy in late FY23, comprising the following integrated segments:
- Fortescue Future Industries: Green energy project development and production
- Fortescue WAE: Battery and fleet technology development and manufacturing
- Fortescue Hydrogen Systems: Electrolyser and hydrogen production systems development and manufacturing.
- Fortescue Energy has prioritised and progressed its global portfolio of green energy projects, with a target of five Final Investment Decisions by the end of calendar year 2023.
- Ongoing focus on priority projects in Australia, United States, Norway, Brazil and Kenya.
- Advanced offtake discussions underway with Australian, European, American, and Asian customers for green hydrogen and derivatives.
- Completed construction works on the 2GW Gladstone electrolyser manufacturing facility.
- Commenced manual assembly of in-house designed proton exchange membrane (PEM) electrolyser stacks, with automated assembly line due for delivery and installation in FY24.
- Advanced development of technology and Intellectual Property to underpin decarbonisation of Fortescue Metals, including testing of green haul trucks and fast charger.
- Expanded WAE’s battery and electric power train production operations in the United Kingdom to focus on zero emission products for the off-road sector.
- Continued research and development into green iron and green steel including agreements with China Baowu Steel Group and Primetals and Voestalpine.
- Positive momentum in global policy environment, including Inflation Reduction Act in the United States, Green Deal Industrial Plan in Europe, and Hydrogen Headstart program in Australia.
Source: https://fortescue.com/investors/results-and-operational-performance/fy23-full-year-results
Latest News:
21-Nov-2023: 2023 Presentation – Annual General Meeting
21-Nov-2023: Green-Energy-and-Green-Metals-Projects-Approved.PDF
17-Nov-2023: Fortescue-to-Establish-a-Major-US-Manufacturing-Facility.PDF
16-Nov-2023: Launch-of-Fortescue-Capital.PDF
26-Oct-2023: September-2023-Quarterly-Production-Report.PDF
20-Oct-2023: Climate Transition Plan
12-Oct-2023: Pilbara Operations Site Tour Presentation October 2023
Plenty Happening!
And then there's this, from their AGM Presso on 21st November (this week):
Hard to argue with that! Click Here to check out the rest of the slides in their 2023 AGM Presentation - there's some really interesting ones.
Disclosure: Yep, I sure do!
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31-May-2024: Update:
Happy with the price target - they've tagged it a couple of times in the past year and then retraced, but I'm confident they're going back up to $30 again, and eventually beyond that level. This one was marked "stale" so I'm refreshing it and updating it. I haven't changed anything I've written above - that will be good to look back on in future years to see what I got right and what I got wrong - but Fortescue is going OK at this point in time, and all remains on track.
Their latest update was on May 14th at the BofA (Bank of America) Global Metals, Mining and Steel Conference in Miami, Florida:
The following are some of the key slides (but not all of them):
That last one is reassuring in terms of FMG continuing to pay out very decent dividends (50% to 80% of underlying NPAT dividend policy) while continuing to grow the business, including the energy division.
Source: BOFA-Conference-Presentation.PDF
If you're interested in iron ore, here are links to the presentations given by some other large players across the industry at the same conference:
BHP: Bank of America Securities 2024 Global Metals, Mining and Steel Conference (bhp.com) [Note BHP were using the opportunity to talk up their bid to merge with or acquire Anglo American at that time, which they (BHP) have sinced walked away from after some serious pushback from Anglo American and a few of their (BHP's) own larger institutional shareholders]
RIO: Bank of America Global Metals, Mining & Steel Conference 2024 (riotinto.com)
There were a few other miners presenting as well, including a few that are not involved in iron ore or steel:
Ivanhoe Mines: BofA Securities 2024 Global Metals, Mining and Steel Conference – Ivanhoe Mines
IGO: BoA-Global-Metals-Mining-and-Steel-Conference-Presentation.pdf (igo.com.au)
Alcoa: Alcoa Corporation - Bank of America Global Metals, Mining & Steel Conference
Anyway, still holding FMG, and still happy with the company and its management.
28-Aug-2024: Nah, not so much now. Update:
No longer holding FMG - sold the last of them in June. I'm wary of iron ore exposure right now - I think that all iron ore miners can go lower if the iron ore price goes lower, and there's every chance that it can. FMG is one of the world's lowest cost iron ore producers - from their main Pilbara operations, not so much from Iron Bridge - so they're not going broke, just lower - most likely.
I have plenty of respect for Andrew ("Twiggy") Forrest and what he has achieved with FMG, an Australian top 20 company, and one that has been paying some of the best dividends as well as providing capital growth up until a few months ago when the iron ore price started falling and he backed away from that "Green Hydrogen or nothing!" mantra of his. There's plenty to be concerned about with FMG at this point actually, and most of it has been discussed here already, so I won't go over it again. I'm sure I'll be back in at some point - FMG is my preferred exposure to iron ore, it's just that I don't want ANY direct exposure to iron ore right now.
They reported today and the market wasn't overly impressed (FMG -1%) but the market was down today so not too bad in that context, however they cut their final div to 89 cents (from $1 last year, and the $1.08 interim div this year) and I expected that - lower profits on lower prices, with a bleak near-term outlook, what do you expect? That is one of the reasons I jumped off the FMG train a couple of months ago.
The iron ore miners are attempting to put a positive spin on the situation (the declining global demand for iron ore at this point, mainly driven by China significantly reducing steel production) but the numbers don't lie. As I said, FMG have very low costs, so they're NOT going to become unprofitable, they'll be one of the last iron ore producers standing if iron ore really goes down the dunny, but they're also unlikely to provide me with my best short term returns from here at this point in time, in my opinion, so I'm out.
For people with an investment time horizon of over 5 years, and especially around 10 years or longer, FMG is probably a good pick-up at below $20/share for a super fund or other set-and-forget type portfolio, but that's not where I'm at right now.
Capital Group, Emichrome ?
Who is selling $1.9 billion worth of shares?
An official release disclosing the details of the almost $2 billion trade has yet to be made. However, whispers of who the seller might be are already circulating.
Right now, suspicions are squarely directed towards The Capital Group. As reported by The Australian, the fund manager had engaged JPMorgan — the only book-runner in this $1.9 billion transaction — to exit $1.1 billion worth of Fortescue shares in June, which was also carried out at a discount.
There aren't many others who would fit the description. Looking at the shareholder register, Emichrome is the only other institutional investor holding around $1.9 billion.
The sale follows Fortescue's abrupt de-prioritisation of its green hydrogen dream. As James Mickleboro reported, the iron ore company announced major reduction measures on 18 July. As part of the move, Fortescue will be making roughly 700 roles redundant as it tries to stay 'lean and agile'.
Following this news, analysts at Macquarie indicated there could be ramifications among ESG-focused investors. By ratcheting down green hydrogen targets, Macquarie's analysts believe it may prompt a move-out, stating:
Fully Paid Ordinary Shares (M): 3,079
Another Shake-up in June 2024
The bottom line$$ gets us every time = a rude awakening for the FMG board of directors.
With Fortescue's decision to scale back their hydrogen ambitions, companies tied to the story of Green Hydrogen in panic mode with United Hydrogen and Sunshine Hydro talking about their story in the AFR:
For a bit of background, United Hydrogen Limited is a conglomerate (ahem "roll-up") of hydrogen related businesses led by Will Davidson. Apparently Will Davidson used to be CEO of Powerwrap before it got taken over by Praemium.
To get a sense of the size of this "roll-up" just look at the picture below:
That's a crazy amount of companies and puts UWL to shame. And when I get constant emails from UHL about "Pre-IPO" capital raising for "sophisticated investors" and videos with talking head "investor" "Mark Bouris" of Yellow Brick Road, red flags start to appear (I have myself to blame though after clicking the "INVEST IN UHL" button on their website a year ago!).
Pity I'm not a sophisticated investor so can't invest but having the emails means I can keep track of all the raises.
The most recent raise was at 25c. Yet after countless capital raisings the company is valued at over $600m but at one stage I did get an email that they did reach a value of $1bn.
Anyway back to Fortescue. Andrew Forrest appeared on ABC 7:30 and seemed to struggle on a few questions relating to the company's hydrogen ambitions. Not reassuring for all the companies focused on Green Hydrogen and also Davidson's plans to list United Hydrogen on the ASX.
Flipside from Fortescue scaling back on the Green Hydrogen story would have to be more dividends and cashflow and more focus back to mining. Downside would be all the companies out there tied to the Green Hydrogen story. Without a big company like Fortescue putting in the dollars and publicity, investment in this sector is harder to justify with these smaller companies - possibly prompting the story to be published in the AFR.
02-Feb-2024: FMG tagged a new all time high today of $29.95/share, and closed at $29.73, their highest close ever.
Many of the brokers who have been consistently bearish on FMG above $20 have some egg on their faces now with FMG look set to push through $30 next. The iron ore price has remained higher than most "experts" predicted, and, more importantly, Twiggy has been much more measured and strategic in terms of Fortescue Energy spending.
Fortescue now has two distinct business units, Fortescue Metals - which currently houses their iron ore business, and Fortescue Energy which was previously known as FFI: Fortescue Future Industries.
FFI is now a division of Fortescue Energy. Analysts at some brokerage firms were concerned that 10% of iron ore profits had previously been targeted to fund FFI projects, and they had put a "sell" call on FMG as a result of the uncertainty associated with the rate of return that FFI might generate, and the unknown timeframes for those returns on capital employed.
Apart from that uncertainty - and the market hates uncertainty - as do brokers - FMG had other issues that might have resulted in additional downside risk to the business, such as the seperation last year of Andrew "Twiggy" Forrest and Nicola Forrest after 31 years of marriage, and what that might mean for the 36.74% of FMG that they jointly hold through their family investment company Tattarang Pty Ltd. When they announced their separation in July, they said, “Our friendship and commitment to our family remains strong. There is no impact on the operations, control or direction of Fortescue, Minderoo or Tattarang. We will continue our shared mission to create and gift our wealth to tackle community and global challenges, as recently shown by last months’ donation of one-fifth of our Fortescue shareholding to Minderoo Foundation.” (source: Andrew and Nicola Forrest announce separation; no impact on Fortescue or Minderoo Foundation | news.com.au — Australia’s leading news site [12-July-2023] - see also: Andrew ‘Twiggy’ Forrest reveals truth behind split | news.com.au — Australia’s leading news site [31-August-2023])
And they are indeed continuing to invest together: Andrew 'Twiggy' Forrest and Nicola increase AACo investment to near takeover threshold - ABC News [04-Jan-2024]
And then there's the expected decline in the iron ore price, which has stayed stubbornly above US$105/tonne for the past 12 months, is now around US$130/tonne, and the moving average (red line below) is actually trending up again now - against many expectations.
Source: https://markets.businessinsider.com/commodities/iron-ore-price
And then there is the continuing exodus of KMP (key management personnel) at FMG: FMG ASX: Former NT chief minister Michael Gunner quits Andrew Forrest’s Fortescue energy business (afr.com) [01-Feb-2024 - yesterday] by Kylar Loussikian, Deputy editor - Business, AFR.
Excerpt:
Former Northern Territory chief minister Michael Gunner has quit Fortescue less than 18 months after joining the Andrew Forrest-chaired energy and iron ore major.
His departure followed the exit of Deborah Caudle, the chief financial officer of Fortescue’s energy division, this week and the resignation of former prime minister Malcolm Turnbull earlier in the month. All three were part of Fortescue’s energy business, which is pursuing green hydrogen developments around the world.
Mr Gunner, who resigned as chief minister in May 2022 after leading Labor to government in 2016, said working with Dr Forrest “was an incredible opportunity” and he would remain “an advocate for Fortescue and the path they are forging”.
Former Northern Territory chief minister Michael Gunner joined Fortescue in November 2022. Getty
But his departure, and those of Ms Caudle and Mr Turnbull, will bring greater investor scrutiny on Fortescue’s energy business. There has been an extended executive exodus over the past five years, with former Reserve Bank deputy governor Guy Debelle lasting just five months as chief financial officer, while his successor, Felicity Goodman, remained in the job for eight months before being replaced by Ms Caudle.
Moody’s, a major rating agency, in September said the departures represented a “credit negative, with the potential to impact strategy and operations, which may have implications on the group’s balance sheet, financing and capital structure”.
Fortescue’s lucrative mining division has lost two chief financial officers – Ian Wells and Christine Morris – since August 2022. Its chief executive, Fiona Hick, was replaced by Dino Otranto in September after just six months in the position.
Investors have, so far, shrugged off the elevated executive turnover, with Fortescue shares more than 30 per cent higher over the past 12 months.
The company is also proceeding with the first projects under plans to transform it from an iron ore major into a major force in renewable energy. In November, it agreed to proceed with investments worth $US750 million ($1.14 billion) in Australia and the United States, including $US550 million for a hydrogen hub in Phoenix.
A Fortescue spokesman said: “We respect Michael’s decision, and his personal reasons for making it, and wish him and his family well.”
--- end of exceprt ---
Further Reading: FMG ASX: Andrew Forrest throws hat into asset management with Fortescue Capital (afr.com) [16-Nov-2023]
And: FMG ASX: Fortescue makes green land grab over plots twice the size of Singapore (afr.com) [12-Nov-2023]
And: Fortescue’s true believers back green energy push (afr.com) [21-Nov-2023]
And: FMG ASX: Andrew Forrest’s Fortescue pulls trigger on $1.14b in green energy projects (afr.com) [21-Nov-2023]
And: Why Fortescue wants to be like Brookfield (afr.com) [16-Nov-2023]
And: FMG ASX: Fortescue becomes lead investor in $600m electrolyser firm fundraising (afr.com) [04-Oct-2023]
And: Andrew Forrest flags lower returns for green projects as Fiona Hick exits (afr.com) [29-Aug-2023]
And then there were two influential proxy advisory firms - CGI Glass Lewis and Institutional Shareholder Services (ISS) - who told their clients in Oct/Nov that they should vote against FMG's Rem Report at their 2023 AGM in November on the basis that millions of dollars of bonuses have been paid to retiring executives with little benefit to the company's investors: FMG ASX: Fortescue faces shareholder revolt over ‘special’ exec payments (afr.com) [02-Nov-2023].
That Rem Report resolution was the only one not carried at their AGM on 21-Nov-2023, with 47.63% votes FOR and 52.37% votes AGAINST. So that's "Strike 1" - See here about the "Two Strike Rule" concerning Remuneration Reports.
But anyway - there have been - and still are - plenty of reasons to go negative (bearish) on FMG, and I did personally lighten my FMG positions in recent months a couple of times - to lock in profits, although I do still have FMG as a top 7 position in my real money portfolios.
I think you just have to back the man and his vision, based on his outstanding passion and track record to date of exceptional total shareholder returns (dividends plus capital appreciation).
I wouldn't go "all in" and have FMG as a one-stock-portfolio, but I like them as part of a good diversified portfolio.
Andrew Forrest, Chairman and Founder, Fortescue Metals Group speaks at the Global Energy Transition 2022 conference in New York City, New York, U.S. June 14, 2022. Photo credit:REUTERS/David Dee Delgado
Australia's Forrest promises investments for 14 gigawatt of clean energy | Reuters [11-Jan-2024] By Lewis Jackson
SYDNEY, Jan 11, 2024 (Reuters) - Australian mining billionaire Andrew Forrest committed on Thursday to launch new projects that will help deliver 14 gigawatt (GW) of clean energy in the country by the end of the decade, or a third of the government's renewable energy target.
"The time for talk is over, we are investing right now in Australia’s green energy transition and creating jobs and economic development for regional Australia," Forrest said in a statement.
The commitment is one of the biggest in Australia and will come through a combination of wind, solar and battery projects, many of which are still in the planning stage. They will be shepherded by Squadron Energy, which is wholly owned by Tattarang, the Forrest family holding company.
A spokesperson declined to provide a cost estimate for the project pipeline but said it would be funded by a combination of Tattarang equity and external parties.
Forrest made the announcement at a ceremony marking the start of construction at the 414 megawatt (MW) Uungula wind farm in rural New South Wales state. The 69-turbine, A$1 billion ($671 million) project is the largest under construction in the state.
Squadron Energy on Thursday also signed an A$2.75 billion agreement with GE Vernova to supply wind turbines for Uungula and two other proposed wind projects in the state.
Should it be built, the portfolio of projects will go a long way in helping the centre-left Labor government achieve its goal of 82% of electricity generated from renewable energy by 2030.
It is an ambition which has faced serious hurdles, ranging from community opposition to new transmission networks to uncertainty over government subsidies and support.
Forrest's announcement came as plans to turn the seabed off Victoria state into a giant wind farm hub were dealt a blow after the federal government rejected a proposal to expand facilities at the Port of Hastings due to the risk to local wild life.
Energy Minister Chris Bowen said on Wednesday the government would welcome a fresh proposal and the decision would not delay the start of an offshore wind industry because of the long lead times already built into projects.
($1 = 1.4896 Australian dollars)
--- end of excerpt --- link to full article above.
So, yeah, there are always risks, and not just a couple, there are plenty of risks, but this company just keeps on kicking goals, they're not going broke, they have one of the lowest costs of any global iron ore producer, they're expanding into areas that I'm happy to see them expand into, and I reckon I'm lucky to be a long for the ride.
03-August-2023: This straw is about Wyloo, a company wholly owned by Tattarang, Andrew and Nicola Forrest's private investment group. The Money of Mine podcast boys have managed to get Wyloo's CEO, Luca Giacovazzi, as well as Wyloo's General Manager of Strategy and Business Development, Joel Turco, to talk to them at length about their takeovers of Mincor and the Canadian-based Noront Resources, as well as Wyloo's deal creativity with Hastings Technology Metals, Western Areas, IGO, Regis Resources, and more.
In fact, the chat was so long they had to split it into two halves - here are links to them - you can click on the image or the link below it (both should work). I'll include their show notes and "Chapter Lists" as well.
The Former Bankers Behind Wyloo's Bold Plans (Part 1) - YouTube
Show notes:
We’re delighted to be able to provide the Money Miners with (as far as we know) the first full-length interview with Wyloo CEO Luca Giacovazzi and GM Strategy & BD Joel Turco.
This is the team behind the creative acquisitions of Noront Resources and Mincor Resources. Their deal creativity has extended to Hastings Technology Metals, Western Areas, Regis, and more.
Now the team is looking to translate their deal innovation into mining innovation as they become an integrated nickel producer with the completion of the acquisition of Mincor.
In this Part 1 we get the genesis behind Wyloo and what they are all about today. We go further into the commodities they’re excited by and the tools and their disposal.
CHAPTERS
0:00 Preview
0:48 Introduction
3:19 Luca Giacovazzi and Joel Turco Introduce themselves
5:51 Wyloo Metals Insight and their Mandate
8:28 Did Wyloo Consider Lithium?
14:40 Wyloo’s perspective on the Nickel Market
31:43 Wyloo’s WA Nickel Sulphide Plans
40:33 Does Downstream in Australia make sense?
51:55 Wyloo’s thoughts on Rare Earths
That was Part One, and Part Two is below:
Behind the Curtain on Wyloo’s Big Deals with Luca Giacovazzi & Joel Turco (Part 2) - YouTube
Show notes:
We’re delighted to be able to provide the Money Miners with (as far as we know) the first full-length interview with Wyloo CEO Luca Giacovazzi and GM Strategy & BD Joel Turco.
Part 2 is all about the deals. We go deep unpacking the dealmaking creativity on Wyloo's very public transactions. Think of the bidding war versus BHP for Noront. Remember the raid on Regis? Recall the exchangeable note with Hastings? Surely the "hostile" takeover of Mincor is fresh in your mind? The brains trust at Wyloo takes us through a thrilling and detailed rundown of how it all played out behind the scenes.
CHAPTERS
0:00 Preview
0:55 Introduction
3:41 Investment in Hastings for Neo
6:28 Battle for Noront vs BHP
19:03 Wyloo's wedge in IGO's takeover of WSA
25:21 Wyloo's acquisition of Mincor - Deal of the Year?
41:51 Too much focus on EVs in the Transition
45:00 Where will we see Wyloo next?
-------------------------------
DISCLAIMER
All Money of Mine episodes are for informational purposes only and may contain forward-looking statements that may not eventuate. The co-hosts are not financial advisers and any views expressed are their opinion only. Please do your own research before making any investment decision or alternatively seek advice from a registered financial professional.
--------------------------------
The story about how Wyloo was formed and why they went so hard into Nickel is very interesting. Andrew Forrest was one of a number of Australian billionaires who had been buying up large farming properties and diversifying into agriculture and food, and they were looking at other megatrends that were also worth pursuing. Decarbonisation was a standout, and that lead them to look at the supply and demand dynamics with a number of materials, and two of the standout opportunities within those were nickel and rare earths. And they explain why.
Another reason why this is so interesting is that when you have Andrew Forrest's money behind you, there are many more options available to you, and you can become very creative in deal structuring. One of the earliest examples is how Wyloo beat the world's largest mining company, BHP, in a bidding war for the Canadian Noront Resources, which has now been renamed Ring of Fire Metals under Wyloo ownership - see here: https://www.newswire.ca/news-releases/noront-resources-renamed-ring-of-fire-metals-as-activity-recommences-885623544.html
After "scouring the globe", Wyloo believes that the Eagles Nest project in Northern Ontario's Ring of Fire region is one of the two best nickel sulphide projects on earth. The other one is Mincor's Kambalda project. They've now bought both of them.
They wanted to become serious players in the nickel market, however their vision for Wyloo goes beyond nickel. Their comments of lithium are interesting as well. And on Rare Earths. And on being integrated supply chain producers, being able to - in the future - approach large OEMs and say, we have the mine, the mine life, and the production facilities to produce these rare earth magnets for you for the next 10 or 20 years and we can lock in the cost price for you now as well. And you'd be dealing with Australia and an Australian-based company; China would not be involved at all.
My words there by the way, not theirs. I'm paraphrasing a fair bit. But that's the gist of it I reckon.
Wyloo believe that very few companies will be in that sort of negotiating position, so it would be a great position to be in, if they can do it.
There are too many insights in these two podcasts to list here, so I'll just say... if you're interested in battery metals, or how a smart billionaire likes to invest his family's money, or just like the art of the deal, this is worth your time. As Molly used to say, "Do yourself a favour!"
Further Reading:
Andrew Forrest’s Wyloo gains control of ASX-listed nickel miner Mincor Resources (smh.com.au) [5-July-2023]
Andrew Forrest’s ‘whatever it takes’ call on nickel for batteries (afr.com) [5-July-2023]
Australian Billionaire Andrew Forrest’s Wyloo Metals Beats BHP In Bidding War For Canada’s Noront (forbes.com) [19-Oct-2021]
Land secured at Kwinana for Australia’s first proposed integrated battery material facility | Wyloo Metals [14-Apr-2023]
Disclosure: I hold FMG shares. Wyloo is a private company owned by Tattarang, and Tattarang is a private company owned by Andrew ("Twiggy") and Nicola Forrest. Tattarang owns 36.7% of FMG, so around $24.35 billion of FMG (which is currently a $66.35 billion company, and one of the 10 largest companies in Australia). Tattarang own a heap of other stuff as well however, even a small position (15.37%, was 19.9% but they've been diluted by a couple of share placements) in Swoop (SWP.asx), one of my worst performing investments at this point in time. So we can't buy shares in Wyloo, or Tattarang, but we can buy shares in FMG which owns FFI (Fortescue Future Industries), another one of Twiggy's passions. And of course, FMG is the largest position in the Tattarang portfolio of investments. Wyloo is probably the second I would guess.
On the subject of electrification and EV, maybe Fortescue is the best electrication play?
A Russian cyberattack and allegations of wrongdoing.
Sells and holds across the board although some have revised up their price targets.
Simandou "Pilbara killer" waiting in the shadows?
It seems everyone is trying their hardest to press down FMG.
But the share price still trundles on and outperforming the likes of BHP and RIO. Not to mention the main index while FMG tries to shore up their EV business and electrify their operations.
This is where sometimes it is better to do your own research and ignore the naysayers.
Having said that, I think electrification is more than just batteries or Lithium. There is also the all the infrastructure that needs to support it. The hard part is finding an investment that captures all those areas.
Still considering whether to reenter after recently selling out. Sometimes it is hard to ignore the price action.
12-July-2023: Andrew and Nicola Forrest confirm break-up, insist 'no impact' on Fortescue, Minderoo or Tattarang - ABC News
Andrew and Nicola Forrest have split up after 31 years of marriage. (Supplied: Mindaroo Foundation)
Andrew and Nicola Forrest confirm break-up, insist 'no impact' on Fortescue, Minderoo or Tattarang
By Keane Bourke
Posted 2h ago [9:30pm eastern time, 12-July-2022]
updated 1h ago [approx 10:30pm eastern time]
One of Australia's richest couples have announced their separation, but insist there will be no impact on their shared ventures, including mining giant Fortescue Metals Group (FMG).
Billionaire philanthropists Andrew and Nicola Forrest, who have been married for more than three decades, issued a statement confirming their split on Wednesday evening.
"After 31 years of marriage, we have made the decision to live apart," the statement said.
"Our friendship and commitment to our family remains strong.
"There is no impact on the operations, control or direction of Fortescue, Minderoo or Tattarang.
"We will continue our shared mission to create and gift our wealth to tackle community and global challenges."
Together they control 37 per cent of FMG, which last year reported $US6.2 billion ($9.2 billion) net profit after tax.
Andrew Forrest and Nicola say they have have "made the decision to live apart". (ABC Capricornia: Tobi Loftus)
Wide range of business interests
The couple partner on a number of business and philanthropic ventures, including the Minderoo Foundation and their private investment company Tattarang.
Their investments stretch across agriculture, energy, property and resources, including RM Williams, Harvest Road and clothing brand Camilla.
The statement announcing their separation highlighted their donation of one-fifth of their FMG shares to the Minderoo Foundation in June.
The day before that donation was made public, a company called Coaxial Ventures was created, with documents showing it is entirely owned by Ms Forrest.
When the donation to Minderoo was disclosed, so too was a transfer of 50 million FMG shares to Ms Forrest's new company.
Andrew Forrest has been ranked as Australia's second-wealthiest person. (AAP Image: Bianca De Marchi)
With a fortune estimated at about $33.2 billion by the Australian Financial Review, Mr Forrest was ranked as the second-wealthiest person in Australia behind fellow WA mining magnate Gina Rinehart.
Mr Forrest has spent the past few years seeking government funding from around the globe for his green hydrogen ambitions, believing the technology can bring the fossil fuel industry to an end.
It contributed to a bitter scrap with fellow WA billionaire Kerry Stokes, who he accused of abusing his media power, including his ownership of the state's only daily newspaper, to damage his "green energy mission".
Last year Mr Forrest committed $US500 million to a multi-billion-dollar fund to help rebuild Ukraine alongside the country's president, Volodymyr Zelenskyy.
--- ends ---
Posted 2h ago, updated 1h ago
Disclosure: I hold FMG shares.
09-June-2023: FMG-Board-Changes.PDF
Reasonable Salary, but not overly excessive for an ASX20 company executive. FMG are Australia's 14th largest ASX-listed company.
Home | Fortescue Metals Group Ltd (fmgl.com.au)
Gaines is the first woman to run a major Australian publicly listed mining company. She joined the world's fourth-largest iron ore producer in 2013 as its first female board member, bringing management and board experience from the banking, construction and travel sectors. She became CFO in early 2017 before being named CEO in November and has reduced Fortescue's heavy borrowing costs through refinancing and debt repayment.
Her appointment came at a challenging time for the miner: Prices of its lower-grade iron products were under pressure as Chinese steelmakers, complying with tougher anti-pollution measures, move to higher-quality grades that can be processed more efficiently. China, the miner's biggest customer, remains its core focus, Gaines says, though the company is looking to broaden market share in Asia and Europe. Gaines stresses her highest priority at work is safety and wants "to empower the entire Fortescue family to look out for their mates."
Source: Elizabeth Gaines (forbes.com)
FMG has quite a bunch of sell recommendations. Price targets below $15.
Have to also add that many economists such as Saul Eslake always comment on FMG as having more downside to the Iron Ore price and always cite Simandou.
Yet share price stubbornly holds above $19.
Only theory I can think of is FFI. Or maybe investors betting FMG is secretly drilling their lithium tenements but not informing the market (see my previous straw). Plus no matter what, I think FMG will still be profitable at low prices.
Earnings per share estimates for anyone interested in watching the next financial year results
Did get out but still on my watchlist. Think the analysts are wrong and they are simply trying to get people to sell at lower prices.
Saw the Wildcat Resources announcement on acquiring some Lithium tenements and noticed that FMG has been also doing a bit of drilling also.
But so far I don't think FMG has found anything significant
Also according to the ABC they have some tenements in Ravensthorpe
However from one of the earnings transcripts dating back Oct 2022, FMG appears to think there is too much lithium at the moment and may explain the lack of activity in that tenement. Hard to say if FMG will be eventually proven right.
[held]
Todays quarterly update summary (note price action today seems more to do with the drop in iron ore prices than a generally positive update):
- Average revenue of US$109/dry metric tonne (dmt), realising 87 per cent of the average Platts 62% CFR Index for the quarter.
- Net debt of US$2.1 billion at 31 March 2023
- The first wet concentrate was produced from the Ore Processing Facility at the Iron Bridge Magnetite Project on 21 April 2023, ahead of being pumped to Port Hedland
- Fortescue’s Port Hedland operations were briefly suspended as a result of Tropical Cyclone Ilsa in April 2023. There were no injuries or significant damage reported.
- Guidance for FY23 shipments, C1 cost and capital expenditure remains unchanged. Strong performance means the C1 cost is expected to be at the lower end of the range.
Disc: I own
US$6.2 billion capital investment by 2030 to eliminate fossil fuel risk and reduce operating costs by US$818 million per year.
2924-02570003-6A1110329 (markitdigital.com)
Some Slides Below:
FMG FY22 - PowerPoint Presentation (markitdigital.com)
Hydrogen . Ammonia - PH2, IPL, FMG ..others
AEMO - speaks about the "Hydrogen Super Power" page 45
28-July-2022: FMG-June-2022-Quarterly-Production-Report.PDF
'Tis the season... for Q4 reports.
Highlights:
So, Record iron ore shipments, average revenue of US$100/dmt (dry metric tonne) for FY22 with average revenue of US$108/dmt in the June Quarter, C1 cost of US$15.91/wmt (wet metric tonne) for FY22 and C1 cost of US$17.19/wmt for the June Qtr, net debt reduced in the quarter from US$2.4b (as at 31 March) to US$0.9b (as at 30 June) with $5.2 billion of cash on hand, FY23 guidance for similar volume with C1 cost for hematite of US$18 to $18.75/wmt.
That guidance for FY23 includes ~1m tonne of iron ore from Iron Bridge, which will process magnetite ore. The majority of FMG's ore is hematite ore which requires very little processing; magnetite ore on the other hand requires a large and complex processing facility - the following AFR article from the AFR in April 2019 explains it well.
The first point to emphasise here is that, unlike the new $US1.3 billion Eliwana mine being to the distant west of Fortescue’s new joint venture, Iron Bridge is an expansion project. It will see Fortescue’s marketable tonnes cross the 190mtpa range by the end of 2022. And, like Eliwana, Iron Bridge will allow Fortescue the opportunity to ship a greater volume of higher quality ore.
FMG's dichotomous quality mission
Grade improvement remains an abiding but slightly dichotomous mission at Fortescue.
From the early months of 2016 until very recently indeed, lower grade ores have sold at a discount to the now standard 62 per cent iron ore index because highly profitable steel mills were focused firmly on productivity rather than their blended costs of production.
Both the bigger Pilbara majors – Rio Tinto and BHP – predicted that this focus on productivity would persist because China’s central government wants cleaner air around its major cities.
But successive Fortescue chief executives, first Nev Power and now Elizabeth Gaines, have insisted this was a passing rather than structural event. Despite that narrative, Fortescue has moved quickly to improve the quality of its offering, a new 60 per cent blend called West Pilbara Fines (WPF). Once Eliwana is up and running, WPF will make up more than 20 per cent of the New Force’s product.
And now, with the hot air pretty suddenly removed from the ballooning spread between the Pilbara benchmark 62 per cent product and the circa 58 per cent material that Fortescue more usually ships out, Gaines has moved to further buttress the quality end of the portfolio with the 67 per cent material that Iron Bridge will manufacture.
Critical to the outcome here is that, being majority owned and operated by Fortescue, Iron Bridge will be fully integrated into the existing production and logistics footprint. Fortescue will retain marketing rights over 100 per cent of production. And, through that device, the miner will be able to further flex its quality muscles. Through periods like now when the jaws of the quality spread close, it will pump out as much direct ship hematite as it can and ship Iron Bridge’s 22mtpa as a discreet, premium option.
But if and when the quality discount starts to hurt again, Fortescue has a call that will enable it to blend all of its Iron Bridge entitlement with the direct ship ore (DSO). That would see more than 50 per cent of Fortescue’s portfolio sift through the 60 per cent grade level.
Indeed, the math as explained to us is that blending all of Iron Bridge with Fortescue DSO would see 100 million tonnes of product through that 60 per cent grade target.
Patience the new virtue at FMG
The patient progress on Iron Bridge sits in encouraging contrast to the harem scarem that was such a feature of Fortescue’s occasionally controversial progress from figment of an entrepreneur’s imagination to the world’s fourth iron ore super-major.
In many ways, Iron Bridge is just so un-Fortescue.
It will mine a distinctly different type of iron ore from the rest of the Fortescue fleet; it will arrive with financial risk comfortably isolated from the mothership; it will deliver a different-type of product that will be distilled from a large and complex processing facility and it has been born of six years of patience, collaborative study, technical review and financial validation.
As it turns out, while he may have taken a punt on finding big-time magnetite back in 2003, Forrest took a whole lot of convincing that the complexity of the project needed to transform it into cash.
Apparently this prudence was the product of past failure. Forrest learned to distrust complex metallurgy and processing through the failure of his first tilt at mining glory. Anaconda Nickel was ultimately undone by the processing needed to extract nickel from the Murrin Murrin mine it developed.
As a result, the gap between Iron Bridge passing through its first major investment gateway and its last has been long and punctuated by ever more deeply informed scrutiny.
The framework of Tuesday’s success first became public in August 2013 when the guy leading the Iron Bridge project, Michael Masterson, lured Taiwan’s Formosa Plastics Group into joint venture with an entity that was 88 per cent owned by Fortescue and 12 per cent by Baosteel.
That deal, which left Fortescue with a foot in each of the Chinas, saw Formosa pay $US137 million to join a joint venture that few had imagined would ever get anywhere and then commit to fund the first phase of development to the tune of $US527 million.
Over subsequent years Power and Gaines have led successive rounds of innovation and project refinement that have more than doubled its scale, improved its environmental footprint, redefined its technologies, secured its cost and customer base and then generated advantage by embedding it in the future Fortescue product suite.
Calibrated delivery
Mind you, having finally waved the green flag on its new wing there will be no hanging around. Fortescue intends to build its new plant around an existing full-scale pilot plant and will have the new kit ready to roll by 2021 and it will spend but a year ramping up to its 22mtpa nameplate.
Again, the timeline here is the product of careful calibration. Quite sensibly, Fortescue will have largely completed work on the new Eliwana mining complex before the financial and engineering heavy lifting starts at Iron Bridge.
Eliwana is two things. It is a replacement project which fills production holes left by the retirement of the Firetail complex on the western wing of Fortescue’s now five-strong community of mines. And it is critical to fulfilling the grade and volume promise of the West Pilbara fines strategy.
All of the current Fortescue fleet produce from the same sorts of hematite ore bodies that have made the Pilbara the world’s biggest iron ore production province.
What makes those hematite deposits so attractive is that they have been naturally enriched over the eons, they are generally close to or above the surface and the best of them can be dug up, crushed and shipped out as either lump or fines products. These are direct ship ores that require very limited processing to leave the country at grades that range between maybe 57 per cent and 63 per cent.
That said, Fortescue has made an art over time of value-adding through the embrace of low-cost ore processing that has allowed it to make the most of shallow, lower grade ores that otherwise would have been moved to waste dumps.
Deep understanding
But Iron Bridge is not a hematite deposit. It is magnetite. Magnetite ore bodies can be competitively large but they host lower grades. The background grade at Iron Bridge, for example, is 30 per cent.
Making a buck out of magnetite requires a deep understanding of the metallurgy of the target deposits, a substantial investment processing technology and then finding the right people to operate those new machines.
There are a host of working magnetite operations in Australia. The most rancorous is the Sino Iron project, which is a joint venture between SinoSteel and Clive Palmer. Things have not gone swimmingly on many fronts. Outside of the fact that the partners have been at daggers drawn pretty much since production began in 2013, the mine and processing complex cost nearly $20 billion and has not yet got close to running at its 24mtpa nameplate.
The relatively short but productive history of Fortescue says that no one should now doubt that Fortescue will manage is stakeholders and its operations with considerably more aplomb and profitability.
Matthew Stevens writes on business, specialising in mining, energy and opinion. Matthew is a senior business writer and columnist. Email Matthew at matthew.stevens@afr.com.au
---------------
Also: https://www.afr.com/companies/mining/fortescue-metals-to-develop-3-7b-mine-20190402-p519uv
Chinese conglomerate CITIC Limited poured $US12 billion into the Sino Iron project in the Pilbara, which produced 19 million tonnes of magnetite concentrate last year and remains caught up in a bitter royalties dispute with Clive Palmer. The loss-making $2.6 billion Karara project in the state’s midwest is set to become 100 per cent owned by Chinese steelmaker Ansteel after it agreed to buy out Australian partner Gindalbie Metals for about $25 million in March.
Fortescue chief executive officer Elizabeth Gaines said the company had an “unparalleled track record” of developing and building mining infrastructure in the Pilbara and some of the players involved in other magnetite projects lacked the same level of experience.
Ms Gaines said Fortescue, Taiwan’s Formosa and China’s Baosteel had already gone a long way to de-risking Iron Bridge, about 145 kilometres south of Port Hedland, by investing $US500 million in construction of large scale pilot and demonstration plants to validate key equipment and magnetite production processes.
Confident over long-term demand
Fortescue, which will operate Iron Bridge and has full marketing rights, has already secured binding off-take agreement for 5.3 million tonnes a year with five different steel makers.
When combined with ore from Fortescue’s under construction Eliwana mine, it is expected to increase Fortescue’s product grade and give it the option of delivering the majority of its products at greater than 60 per cent iron.
Ms Gaines said Fortescue was confident in the long-term demand for the premium product, supported by market fundamentals, including global supply conditions, and investment in higher efficiency steel-making capacity.
“We are confident this project will deliver growth in earnings and cashflow, resulting in enhanced returns to our shareholders and our joint venture partners through all market cycles,” she said.
Ms Gaines said Fortescue had not been motivated by the current strength in iron ore prices driven by Vale’s production problems in Brazil or by the heavy discounting applied to its low-grade product last year in making a call on Iron Bridge after being more than a decade in the pipeline.
Iron Bridge will deliver a premium product with iron content of 67 per cent. Photo: Erin Jonasson
She said Fortescue and its partners had taken their time to make sure the project and its cost profile were right and that long-term market fundamentals were also strong.
Macquarie analyst Hayden Bairstow said Fortescue could either sell the concentrate at a premium or blend it with lower grade iron ore to attract higher prices depending on market conditions.
“What this does is allow them to upgrade their product suite forever,” he said.
Surprise price tag
Mr Bairstow said the project had been talked about for a long time but the price tag came as a surprise.
“I don’t think $US2.6 billion for 22 million tonnes a year was in anyone’s numbers when you look at the capital costs of Karara and Sino Iron that are much higher,” he said.
“Clearly Fortescue have a lot of their own infrastructure and will leverage off that.”
Macquarie expects Iron Bridge to generate strong margins in the long term based on all-in cash costs estimated at $US45-55 a tonne.
Fortescue chief executive officer Elizabeth Gaines is confident in the long-term demand for premium product. Frances Andrijich
Fortescue chief operating officer Greg Lilleyman said the completion of the bulk of the work on Eliwana would fit in well with the start of work in earnest on Iron Bridge.
He said the “neat thing” about the concentrate production was that it allowed Fortescue to adapt its product suite to meet market conditions.
Capacity to handle more production
Iron Bridge has a mineral resource of 5.45 billion tonnes and a mine life of more than 20 years, including an ore reserve of 716 million tonnes.
The development includes a 195 kilometre-long Canning Basin water pipeline and a 135 kilometre-long concentrate pipeline to Fortescue’s Herb Elliott Port Facility in Port Hedland.
The pipeline will run alongside Fortescue's rail line for part of the journey into Port Hedland where the company has enough land and ship loading capacity to support the increase in production from 170 million tonnes a year to 192 million tonnes a year.
Hong Kong-registered FMG Iron Bridge, 88 per cent owned by Fortescue and 12 per cent by Baosteel, controls 69 per cent of the project with Formosa owning the remaining 31 per cent.
The Fortescue share of development costs is $US1.85 billion, which it intends to fund through a combination of cash and debt.
Brad Thompson writes across business and politics from Western Australia for The Australian Financial Review. Brad is based in our Perth bureau. Connect with Brad on Twitter. Email Brad at bradthompson@afr.com
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Further Reading:
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That was published this afternoon. FMG closed up 52c, or +2.86%, at $18.70/share. Back in a bit of an uptrend I think.
Source: Commsec.
Disc: I hold FMG shares and I'm happy with this report. It bodes well for the full year report in August and the declaration of their dividend for the full year, which will no doubt be significantly less than the $2.11 fully franked dividend they paid out last year (as a final dividend), but should still keep FMG as a very decent above-market dividend yield play, which is not even the main reason for holding them. They are also one of the lowest cost iron ore producers in the world, and they have FFI (Fortescue Future Industries) now too, which is all about clean and green energy production and storage technologies and FFI is going to give them a big kick-along in future years, IMHO.
Forrest says green hydrogen market could be worth $16 trillion by 2050 | SWM News (swmgroup.com.au)
03-July-2022: FMG has recently been an excellent dividend stock. The founder of the company, Andrew ("Twiggy") Forrest, whose real first name is actually "John" but is known as "Andrew Forrest" or "Twiggy Forrest" (or just Twiggy) is the largest shareholder - he owns 36.74% of FMG through his family holding company, Minderoo Group, also known as Tattarang Ventures, who incidentally also own 19.7% of Swoop (SWP) which I also hold shares in. Twiggy is involved in a lot of philanthropy (giving money away via large donations and financial support of charities, plus he runs his own charity with his wife and daughter called the Minderoo Foundaion), and he invests in other companies that he is not directly involved in running, and he finances all of that through those large FMG dividends that he gets every 6 months. He wants to keep those coming, and as the largest shareholder and also the Chairman of the FMG board and also now the Managing Director and CEO/boss of the iron ore division (a role he has just returned to in recent months, although technically Elizabeth Gaines is still the MD of FMG until August - i.e. next month - when she moves to being a non-executive director and takes on the role of "Global Brand Ambassador for FFI"), Twiggy has a HUGE say in their dividend policy. Here's their recent dividend history followed by an iron ore price graph:
Source: Commsec [edited by me]
Source: https://tradingeconomics.com/commodity/iron-ore [screenshot edited by me]
So I think it's fair to assume that the FMG final dividend is likely to get reduced just like their interim dividend was, because of the lower iron price now.
Last year the interim dividend was $1.47/share. This year the interim dividend was 86 cents/share, so it was almost halved.
Last year their final dividend was $2.11/share. Let's assume they more than halve that, reducing it all the way back to 86 cents, the same as the reduced interim dividend. That would mean that they would still be on a dividend yield of 10.1%, plus franking, or a grossed-up dividend yield of over 14% (which includes the full value of the franking credits), based on their current share price of $17/share.
If they only halved the final dividend from last year (from $2.11 to $1.05) then their net yield would be 11.2% and their grossed-up dividend yield would be around 15.7% (based on a SP of $17).
I'm thinking 86c is about as low as they'll probably go with that final dividend because I wouldn't expect the final dividend to be lower than their most recent interim dividend when the iron ore price is around the same level but has been higher for basically the whole 6 months (than where it ended H1 of FY22 on 31-Dec-2021).
However, the other thing to consider is that there is now a second division to FMG, and it's called FFI, or Fortescue Future Industries, and with the iron ore price in decline, for now, until China stimulates their economy again with more infrastructure spending, or iron ore demand picks up for other reasons, Twiggy may want to conserve more cash from iron ore profits for FFI than what he has previously guided for.
The iron ore price would have to drop to below $20/tonne for Twiggy to start getting worried about FMG not being profitable, and the iron ore price is still over $100/tonne, (all in US$), but Twiggy is a man on a mission and he has the bit between his teeth (I'm probably using a horse analogy because Tattarang [the name of Twiggy's private family investment company] was the name of a favourite horse that they had back on the cattle station [called "Minderoo"] that he was raised on - and has since bought back - that's why Minderoo and Tatterang are the names he has given to his private family companies and his charity). And Twiggy might want to accelerate the Green Hydrogen work and other work that FFI is doing and that means he may choose to funnel more money into it.
From my own personal point of view, my main three reasons for being in FMG are (1) the above-market dividend yield, (2) FFI and that exposure to future green energy production and electric vehicles, and (3) because FMG are one of the lowest cost (per tonne) iron ore producers in the world with SO much iron ore within their tenements. They are not going to run out of ore any time soon. And if the iron ore price craters the last companies standing will be the lowest cost producers, and FMG is one of those. Also, their grades are good and they are value-adding with their Iron Bridge Magnetite Project - see below:
Source: Fortescue Metals Group gives green light to $3.6b Iron Bridge project in WA's Pilbara - ABC News
Source: Iron Bridge Magnetite Project, Australia (mining-technology.com)
Those last two images and links were from 2019 and 2020. Iron Bridge has come a fair way since then. And that's just one of many sites that FMG operate.
Our Operations | Fortescue Metals Group Ltd (fmgl.com.au)
So, where was I? I got side-tracked. Yeah, those were my three main reasons for investing in FMG, plus a couple of extra ones for good measure. If the dividends reduce and the FFI stuff accelerates I'm OK with that because it's adding value and the company will be worth more in future years one way or the other but the quicker they achieve their goals with FFI, the quicker the market will realise that FMG is going to become the world's first green iron ore company, with electric trains, electric haul trucks, carbon neutral operations, and a producer of green hydrogen to boot, plus the other areas that FFI are working on.
That's all going to take time clearly. It will take years. But if the market sees actual progress rather than just a series of positive announcements about investments and joint ventures, then I think they'll start to get looked at in a different way, and get positively re-rated by the market. If not, then Twiggy could always demerge FFI at some point and then shareholders will hold two different companies and can choose whether to keep one or both. A demerger is always a good way to highlight (or "unlock") value that is not being recognised within a business. Often the demerged entity goes on to have more success than their parent company. Not always but it's happened a few times. Twiggy has given NO indications that he has any intentions to demerge FFI, but I am just saying that if the market doesn't recognise the value in that division within the next couple of years, that is always an option that he has, and I would not be unhappy as an FMG shareholder if he did go down that path, or even just put it out there for discussion, because I think it would draw more attention to the value in that business.
There's value there now, but in future years it's going to be massive, in my opinion.
Down at $17, where they closed on Friday, they look cheap to me.
Source: Commsec.
However, they got down to around $14/share for that October-early November period last year, so perhaps they will drop back down there, if the iron ore price drops further.
They might get cheaper. They're in a downtrend right now. However, I'm happy to hold them through. That downtrend could reverse very quickly, as it has done before.
Their trailing dividend yield according to Commsec is now 17%, but that is based on the past two dividends, and one of those was the $2.11 final dividend they paid last year. I imagine that there isn't an ice-block's hope in hell (to borrow a saying that Twiggy used recently to describe his thoughts on the possibility of a recession this year) that FMG will declare a final dividend of that magnitude next month. The iron ore price was around US$224/tonne at the end of FY21 and at the end of FY22 (i.e. now) it's around US$118/tonne, so more than $100/tonne lower, and the iron ore price during the period as well as the iron ore price at the end of the period, and its trajectory (which is currently south) informs the amount of the dividend declared.
In basic terms, their profit margins were higher in H2 of FY21 than they were in H2 of FY22, so they made less money this year, so they have less cash to distribute to their shareholders.
For that reason, the 17% historical/trailing dividend yield is misleading and should be ignored.
However, as I have explained above, I believe they will at least match their interim dividend (of 86cps) which puts them on a net dividend yield of just over 10%, and a grossed-up yield of over 14% (including the franking credits).
And that's not even the ONLY reason to hold FMG. There's also FFI, as I have explained. Click on the first link below to get an idea of how busy FFI has been recently.
More reading:
Latest News | Fortescue Metals Group Ltd https://www.fmgl.com.au/in-the-news/media-releases
Who We Are | Tattarang https://www.tattarang.com/who-we-are/
Tattarang https://www.tattarang.com/
Co-Founders | About | The Minderoo Foundation https://www.minderoo.org/about/co-founders/
Fortescue Group announces leadership that will drive its transition to a global green renewables and resources company | Fortescue Future Industries (ffi.com.au) https://ffi.com.au/news/fortescue-group-announces-leadership-that-will-drive-its-transition-to-a-global-green-renewables-and-resources-company/
Disclosure: I hold FMG in all of my main RL portfolios and they are also held here in my Strawman portfolio. I will probably look to switch more money into FMG if they fall back to around that $14 level where they found support last year.
Nicola and John (Andrew) Henry Forrest ("Twiggy") from the Minderoo Foundation website.
Nicola and Twiggy at Minderoo Station, which he bought back after making his first few million from FMG. Source: Who We Are | Tattarang
Source: Fortescue's Forrest says German hydrogen deal is just the start | Reuters [January, 2022]
Source: Our Operations | Fortescue Metals Group Ltd (fmgl.com.au)
04-Feb-2022: Sparc Technologies | Joshua's resilient retail pick on Ausbiz
06-Feb-2022: That Ausbiz video (recorded on Friday, 4th Feb, i.e. last Friday) starts off with Joshua Baker from Capital H Management (also BkrDzn on Strawman.com) discussing small (/micro) caps opportunities and risks at this point in time, which is interesting, followed by Nadine Blayney interviewing Sparc Technologies' (SPN's) Executive Chairman, Stephen Hunt, on the company (Sparc, SPN) and their deal announced last week that will see FMG's FFI division paying $1.8m to buy 20% of Sparc Hydrogen, then moving to 36% of the JV at stage 2 (which will see FMG lob in another $1.475m cash to earn an additional 16%, taking their stake in the JV up to 36%.)
Prior to this deal, the owners of the Sparc Hydrogen JV were Sparc Technologies (SPN) with 72% and the University of Adelaide (UoA) with 28%. After stage 2, UoA will still own 28%, with SPN and FMG both owning 36% each.
FFI-to-Acquire-Interest-in-Sparc-Hydrogen.PDF
As well as their innovative and potentially cheaper Hydrogen tech, Sparc also have significant IP in Graphene, however it's unclear whether FMG's FFI division is also keen to develop that technology.
Nadine says in the video that FFI now owns 36% of Sparc (SPN), however it would appear that this is not the case. FFI (and their parent company FMG) will own 36% of Sparc's "Sparc Hydrogen" JV with UoA - after stage 2 funding is complete, but not 36% of Sparc (SPN), as I understand it.
I hold FMG shares (Fortescue Metals Group, who own FFI - Fortescue Future Industries) but I do not hold SPN (Sparc) shares.
I like the solid moves that FMG are making towards their "carbon neutral by 2030" goal, and the businesses and technologies that they are investing in. This latest deal comes after FMG announced on 24-Jan-2022 that they were acquiring UK-based Williams Advanced Engineering (WAE) for £164 million (approximately US$223 million). This is the same Williams that have been involved in F1 racing for decades and WAE have successfully designed, developed and installed electric motors into cars, mining trucks, boats and planes. FMG's FFI with WAE are planning to develop electric trains to replace the diesel-powered trains FMG currently use to haul their iron ore from their various mines to Port Hedland for shipping. They have said they will make a further announcement on this early in 2022, which should be soon-ish I'm guessing.
I have posted a straw a couple of weeks back about that announcement - see here: https://strawman.com/reports/FMG/Bear77?view-straw=16343
Due to a system bug, that link won't actually take you to the straw (like it should), it will take you to my report on FMG, which starts with my rather lengthy valuation for FMG, but if you scroll down until you get to the actual straws (below the valuation), that straw on the WAE acquisition should be at or near the top of my straws.
24-Jan-2022: Acquisition of UK Based Williams Advanced Engineering
ACQUISITION OF UK-BASED WILLIAMS ADVANCED ENGINEERING
Leading provider of high-performance battery and electrification technologies Fortescue Metals Group Ltd (Fortescue, ASX: FMG), has entered into a share sale and purchase agreement to acquire 100 per cent of Williams Advanced Engineering Limited (WAE) from private equity firm EMK Capital and Williams Grand Prix Engineering Limited for £164 million (approximately US$223 million). The transaction is expected to conclude by the end of March 2022, subject to the satisfaction of customary conditions precedent including United Kingdom foreign investment approval.
WAE will be vertically integrated into Fortescue’s diversified resources and green energy business and will be managed via Fortescue Future Industries (FFI), Fortescue’s green energy and green technology division. Fortescue has worked closely with WAE since early 2021 to design and build a prototype battery system to power an electric mining haul truck, an important first step in the decarbonisation of Fortescue's mining haul fleet.
The acquisition of WAE provides critical technology and expertise in high-performance battery systems and electrification and will enable Fortescue to accelerate and support the decarbonisation of Fortescue’s mining operations as well as establishing an important new business growth opportunity. Together, Fortescue and WAE will develop battery electric solutions for Fortescue’s rail, mobile haul fleet and other heavy mining equipment, to accelerate the rapid abatement of diesel usage to achieve the decarbonisation of Fortescue’s mining operations by 2030. In addition, Fortescue and WAE will work together to grow WAE’s world-leading green technology and engineering business.
One of the first major projects to be developed will be a world leading battery electric train concept. Fortescue and FFI will announce further details on this early in 2022.
--- end of excerpt ---
This is what I want to see. Steady progress with the FFI division of FMG. I like it.
Disclosure: I hold FMG shares both IRL and here.
22-July-2021: The following image is a screenshot from a LinkedIn profile and Activity Feed - see here for further details: https://strawman.com/forums/topic/5257
I've chosen to post it under FMG because FMG is Australia's highest profile pure-play Iron Ore company (BHP & RIO have other divisions), and it's about the value we attribute to a bar of iron.
