fmg the lehman of the commodities bubble?, page-17

http://www.smh.com.au/business/iron-ore-bubble-to-bounce-or-burst-20120904-25cj3.html

Iron ore bubble to bounce or burst?

September 5, 2012

FIVE days is a long time in business when the iron ore price is deflating faster than a China bubble.

Ask John Andrew Henry Forrest, known to most as Twiggy.

Last Thursday, Twiggy's lieutenant, Nev Power, told a business lunch that while the slump in iron ore price was ''disappointing'', he was expecting an iron ore rebound within months.

Yesterday, Nev detailed the small matter of big cuts to capital expenditure, hundreds of job cuts, a cost-cutting regime and flagged asset sales to bring the miner back to profitability at current prices.


It's not like they were even considered two weeks ago at Fortescue's results. One journalist had the temerity to ask Nev yesterday if Fortescue had any credibility left. (Yes, he assured us.)

So it's perhaps at this point that the words of renowned short-seller Jim Chanos back in April will ring in Twiggy's ears. Is it only five months since Chanos rather famously described Fortescue as a ''value trap''? Particularly seeing it came with a stinging kicker that the company was characterised by ''a somewhat promotional management team''.

Chanos punted that iron ore prices were headed south big-time and with it Fortescue's share price.

''Increasingly, with any kind of reversion to the mean of iron ore prices to $US100 per tonne or less, we're going to see a dramatically lower ability to service the debt and to service the capital programs they have. And a stock price materially lower than it is today,'' Chanos said.

Iron ore prices have halved over the past year to $US89 a tonne. Fortescue shares have nearly halved since Chanos' comments.

No doubt Twiggy just saw great value when he was buying 10 million shares last week, first outlaying $20 million and then $18 million.



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