1 week, page-28

From UBS:

FMG production report due Thursday 30 January 2014
FMG is scheduled to release its December 2013 quarterly production report on 30 January 2014 with a conference call at 2:30pm (AEDST).

Forecasting 28.0Mt equity shipped in DQ 13 at US$38/wmt FOB
We forecast DQ 13 total shipments of 29.1Mt, a run rate of ~115Mtpa and up 12% q/q from the 25.9Mt shipped in the September quarter. Port Hedland exports show 86.5Mt for the quarter, up 4.2% q/q (+3.5Mt) from the 83.0Mt in the September quarter. Given BHP’s shipments of 53.8Mt increased by 0.25Mt q/q, and our forecast that AGO increased its shipments by 0.24Mt, this indicates that FMG’s DQ 13 shipments should have increased by ~3Mt q/q, to 29Mt, broadly in line with UBSe of 29.1Mt. On an equity basis, we forecast shipments of 28.0Mt, up 13% q/q from the 24.7Mt shipped in SQ 13. FMG’s latest guidance is still for production to run at nameplate 155Mtpa by end MQ 14. We forecast costs rising to US$38/wmt in DQ 13, up 15% q/q due to production commencing at Kings. Realised price is forecast to lift to US$122/dmt cfr compared to US$121/dmt cfr in SQ 13, in line with the ~US$2/t lift q/q in the Platt’s 62% Fe price.

Strong cashflow generation and debt reduction to drive FMG share price
We believe that any production miss is seen as a short term issue. Strong free cash flow generation and debt reduction is expected to drive FMG’s share price over the course of 2014. Near term, however we may see further pressure on FMG’s share price as the market’s concerns around falling Chinese steel prices and tightening credit increases. In turn, this may see the iron ore price decline from its level of ~US$125/t cfr. Valuation: $6.47ps (DCF, 10% d.r.)

Our Price Target of A$6.50ps is set in line with our NPV estimate.