- Debt 30 June 2013 = $12.2b - Average interest rate paid = 6.88% - $5.0b of the debt repayable in 2015 - $7.0b repayable in 2017 - Formosa deal subject to FIRB = $500m for rail acess for 4 years - Formosa funds of $500m to ne applied to debt reduction in full - IO price YTD over $130mt - 120mt of IO production per annum is under contract with end users - Target gearing ratio target to reduce from 70.0% to 30.0-40.0% - Cash on hand 30 June 2013 = $2.2b - Dividend declared = $300m - Capex 2013/2014 = $1.90b - Capex funding requirements to be completed in 2014 FY - Additional revenue stream from rail access to enventuate and be positive for cash flow even if Brockam deal is worth less than expected - Beak even including production, admin and interest cots in low $70.0mt - Announcement of commencement of debt reduction with $140.0m at coupon rate of 9.0%, saving $12.0m per annum - Formosa funds when repaid $500.0 m to save a further $35.0m in interest charges (7.0%) - FY 2014 shipments estimate 127-133mt including third party - 155.0mt production 2015 and future years - Equity in IRON Bridge JV now has value with Formosa acquiring stake - Iron Bridge to list on HK exchange or FMG to divest its share and use funds to repay debt
See below extracts from published reports
My point is from the information above and below, FMG has delivered on all points and continues to deliver.
With the increased volume of IO increasing to 155.0mt, FMG will be producing that much cash it surely will result in expedited debt reduction.
YTD IO price has been above $130.0mt, which represents first qtr of 2014 FY.
The only danger for FMG in not delivering is that the IO price tanks.
However the risk that was faced in Sept/Oct 2012 has been addressed. Provided IO price does not fall below say $90.0mt for extended period, FMG should be classed as a strong buy.
The SP long term will reflect the upside that FMH has.
We now wait for Formosa deal to be given FIRB approval, Sept qtr production figures, Cash on hand as at Sept 2013, Brockman issue to be resolved, additional access deals and finally more of the debt being repaid other than the $500.0m Formosa fundsthat will be applied to debt reduction
EXTRACTS FROM FMG PUBLISHED REPORTS
The guidance on total FY14 shipments remains unchanged at 127-133mt, inclusive of third party ore.
As the expansion program is completed and Fortescue reaches full operational capacity at 155mtpa run rate, the gearing levels will be reduced and the Board expects to move to a dividend payout ratio of 30-40% over time.
C1 for FY14 is expected to be in the range of US$36/wmt to US$38/wmt, based on a US
Cash balance of US$2.2 billion at 30 June 2013 reflects strong operating cash flows and rapid decrease in capital expenditure as the T155 expansion program is nearing completion.
Iron ore prices strengthened in the second half resulting in an average realised CFR price in FY13 of US$114 per dry metric tonne (dmt), compared to US$131/dmt in the prior year.
Total operating cost of Fortescue tonnes sold inclusive of shipping costs, government royalties and corporate administration charges was US$63/wmt (FY12: US$69/wmt).
Elect to prepay US$500m upfront to The Pilbara Infrastructure Pty Ltd to access Fortescue’s port facilities at Herb Elliott Port under separate infrastructure access arrangements
FMG Price at posting:
$4.62 Sentiment: Hold Disclosure: Held
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