citigroup recommendation of today

source: citigroup...please DYOR, thx...

Fortescue Metals Group Ltd
Upgrade to Buy
The reversal in our iron ore settlement expectation to -20% hits FMG earnings,
but is offset by lower A$. Perversely, spot commodity price assumptions using
iron ore at US$76/t and 67¢ A$ increases earnings from FMG due to the currency
effect.
The last update from the company had production running at a rate of ~28mtpa in
the September quarter. The company is targeting reaching the initial capacity of
45mtpa by end-November 2008, 55mtpa by 1Q09 and completing the expansion
to 80mtpa in late-2009. We have removed any expansions beyond 80mtpa from
our base case. In the current environment we believe the market will not be
willing to price in this optionality, and would prefer to be bullish with a
conservative set of assumptions.
Cash on hand of A$624m at end of September is sufficient to fund key
commitments for 4Q08, before operating cashflow. Strong cashflow in 2009
should fund A$2b needed for expansion to 80mtpa.
After being cautious on Fortescue since March this year, we believe that the selloff
in the share price has priced in the risks as we see them, and we have
therefore upgraded our recommendation to Buy, High Risk (1H) with a target
price of A$4.50/share.