The issue with the debt, as it does not appear to be going to plan is an issue.
S&P are factoring in a rate of more than 70.00% chance of the debt actually being repaid.
At the current IO price, possibly making $2.00-$3.00 in cash inflows, but nil profit when you include sustaining capital ($2.00) & depreciation.
Ok, they are pushing the debt back to 2021 & still have a few options available, capital raising, asset sales, JV on existing mine with Chinese steel mill etc.., but if IO price declines further, which based on the tsunami of additional seaborne supply comes to market, what will be their options?
They have cut costs to the bone and external factors have worked in their favour, oil , AUD, shipping etc..
If we are realistic FMG needs the IO price to recover to at least
USD$65.0mt to have any chance, to repay most of the debt $80.0mt is required.
Any further decline in IO price will result in long term losses being incurred. They have low grade ore and sell at a big discount which is also an issue.
Some posters take issue with their receipt of prepayments, to me bring it on. The more they receive the better.
The prepayments are a contingent liability that allows for upfront payment and delivery at a later date, it's not as if they won't have the ore to deliver.
Sure the customers that prepay, would be getting a discount, but so what.
If I offer a product or service, and we reach an agreement that I will give you a discount if you pay me now, but I will deliver on 12 months at a pre-agreed discounted price to the market value of the goods, I see no negatives here.
The prepayments ate not reflected as income in the accounts until such time as the ore is delivered(check the accounts)
The cash generated adds to cash on hand that gives additional breathing space, IO demand/supply will in the future reach equilibrium, no questions asked, other than can FMG hold tight until this happens?
Tomorrow's announcement about the terms of the refinancing will be a game changer, it could go either way.
FMG Price at posting:
$1.97 Sentiment: Buy Disclosure: Not Held
(20min delay)