io on the nose, page-18

There was an interesting note on an ABC website that discusses the 87 crash. Interestingly it says that this crash is not as bad as 87, whereas I would absolutely beg to differ. However it also reported that Robert Holmes a Court lost $440M in the one day, and Rupert Murdoch a similar amount.
Well our man Twiggy lost a greater amount today - $600M, or thereabouts, and of course has lost, on paper, some $10Bn or so from the FMG highs.
In 1987 Holmes a Court was deemed unassailable – he was the smartest cookie in the cookie jar – but neither of his companies survive. As Bob Dylan said, "Even the President of the United States sometimes has to stand naked" The gurus were found to be human.
Whilst I note Frank’s comments that Shagger should post his sources, I equally note Frank’s comments that ships are loading and cahsflow is coming in. Of course cashflow is coming in, but what is going out?
I will note the following is taken from an FMG announcement:
The Company raised US$1,650 million in US dollar denominated and €315 million in Euro denominated
Senior Secured Notes to facilitate the construction and initial operation of the Pilbara Iron Ore and
Infrastructure Project.
So yes, they do have debt to operate under in the initial operations, and yes they are probably drawing down on some of that whilst they ramp up. In itself, that is not unusual, and perhaps Shagger is right. And perhaps he should be listened to when he suggests they may actually be losing $10 per tonne – though the figures from the Annual Report do not show that, nor do the JP Morgans of the world with their recent analyses.
FMG are also carrying close to A$3Bn in debt with varying repayment periods. However that debt is all denominated in US$ and EURO – so whilst the A$ falling has a benefit to its iron ore price, it also needs to repay debt and interest in US$ and EUR, whilst also buying “energy” – fuel for mining and transport – which becomes more expensive with the fall in the A$ - though offset somewhat by falling petrol prices.
And of course to balance this we note that FMG made a trading profit of $72M from their first 1.66M tonnes of ore shipped. Hence they are making $43/t, not losing $10/t. However with other expenses (and one should back out adjustments for Leucadia) they have actually lost ~ $130M. Again, not unusual in a start up situation such as this.

But the fact remains - the project is highly leveraged in a risk averse and debt averse market. There must be risk attached to an investment in FMG - even at these seemingly low prices.