from citigroup this morning

from citigroup this morning,
it may interest some.........

Fortescue Metals Group Ltd
Initiating Coverage
FMG has come a long way from iron ore hopeful to being on the cusp of
production. Since a major transformation in 2003, an extensive number of
tenements have been acquired in the Pilbara increasing the tenement area from
~3,000km2 to ~40,000km2. Despite being iron ore bulls, we initiate with a Sell
recommendation (3H) and A$7.00 target price.
Given the commissioning risks still to be faced, we consider its shares have run
beyond fair value. Relative to existing Pilbara producers FMG has the benefits of
a clean sheet design and modern innovation, but application of unproven
technology in mine and rail creates additional risk. Costs are forecast to be
similar with leasing/rehabilitation costs offsetting mining method gains.
Ramp-up to 45mt, optimisation to 55mt and expansion plans to 100+mt are
aggressive. Construction to production risk exists. The first shipment target in
May should be met by bypassing incomplete rail and trucking partway to port, but
risk will then transition from rail construction to delivering production from
continuous miners through 2008 and 2009. Ramp-up also critical for cash flow to
fund expansions and any further capex increases.
NPV at 45mtpa of A$3.40 increases to A$3.80 with 55mtpa optimisation and
A$5.70 with 50% probability of 110mtpa expansion. Further resources/reserves
upgrades are expected over coming months, but are necessary to underpin
expansions/preserve mine life.