fmg strategic position relative to bhp&rio, page-7

All well and good bandwagonjumper except that:

1. The bulk of FMG's debt is provisioned based on future sales (at the peak of the cycle), which they pay only in proportion to the sales they achieve - lower than forecast sales will reduce that provision.

2. IO isn't nickel. The supply/demand equation has shifted temporarily but long term construction will pick up and continue - China still has a lot of cities to build, as do other emerging countries.

3. I totally agree the IO price has way overshot to the high side compared to the historical trend, but even a 40% reduction this year will still be a record high level compared to pre-2008, and that's still significantly above FMG's cost base.

So given the short term outlook the SP at current levels is around fair value if you take traditional forward PE ratios as a guide, and sentiment and speculation will cause that to oscillate around these levels, but long term there is still plenty of upside.

And since I'm in this one for the long term, I'm happy to stick with Twiggy, and as I've said before, I have no problem with anyone making some short term money whichever way they can.