FOLLOWING the news yesterday that China is seeking delayed iron ore shipments from a WA miner, analysts have forecast Fortescue Metals could face similar problems.
Mount Gibson Iron informed the market yesterday it was starting to see the early signs of a slow down in China, with some of its customers seeking a one to three month delay in iron ore shipments.
In a note to clients today, Goldman Sachs JBWere said it maintains its view on Fortescue’s stock as a high-risk buy, adding that the iron ore miner could have similar issues to Mount Gibson in terms of customer demand.
“There is a potential binary outcome for Fortescue given the leveraged nature of the stock and its debt levels. However, we believe the Fortescue assets are strategically valuable even under a very negative scenario of lower prices and lower shipments,” the analysts added.
JBWere also reduced its shipment forecasts for Fortescue to 30.5mt for the year (down from 39.5mt) due to potential customer demand (or their ability to pay).
Even at these lower production levels, JBWere said it believed Fortescue could have around $1 billion of free cash flow before further expansion capex or the repayment of debt.
FMG Price at posting:
$2.68 Sentiment: ST Buy Disclosure: Not Held
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