Iron Ore Price, page-140

What you may be missing is that a large portion of their cash balance is prepayments received from customers. At 31/12/14 in their half year financial report they had $1.6Bn in cash, but also $1.6Bn in deferred income. That is, their entire cash balance consisted of payments made to them in advance of them providing the ore. If I understand correctly the purchasers of the ore agree to this (paying 12 months in advance) in exchange for receiving a discount on the ore (which reduces FMG's margins). Without the purchasers agreeing to this it appears FMG would not have had adequate cash to operate as at 31/12/14. Will the purchasers continue to agree to this going forward? I don't know, but it is certainly not guaranteed. If they do, it continues to erode FMG's margins. When looking at their cash balance, you need to also look at the rest of the balance sheet. The increase in the cash balance since then is due to FMG taking on more debt at higher interest rates and incurring $100m in refinancing costs. In my opinion this may have occurred due to the prepayments coming due (i.e. FMG having to deliver the ore for which they were paid in advance) at the same time as the iron ore price tanking sending their all in cash flow backwards. The half year cash flow, if you strip out dividends paid, and repayment of borrowings, only just generated marginal free cash flow for the half year. And that was with a higher iron ore price. Make of it what you will.

All imo, dyor