This was in the afr yesterday but republished on the below site.
My fav part of article: (not sure why you’d be just starting to factor in this now....)
“Analysts are also starting to factor in growth from Fortescue’s $US1.27 billion Eliwana mine – expected to produce its first ore late in calendar 2020 – and the $US2.6 billion Iron Bridge magnetite project, with both forecast to improve the iron content of its overall product offering.”
Fortescue’s Gaines bullish about Chinese iron demand
in Commodity News 17/12/2019
Fortescue Metals Group chief executive Elizabeth Gaines says the fundamentals of steel production in China remain very robust and she cannot foresee any return to big price penalties for lower iron content ore in 2020.
Ms Gaines said it was significant that iron ore inventories in China had come down and that Beijing had just announced further stimulus through investment in infrastructure.
“There is remaining strength in the underlying market and market conditions,” she said.
Ms Gaines said restocking heading into Chinese New Year would continue to support the benchmark price for 62 per cent iron product.
In terms of discounting for lower iron product, she predicted no “significant going back to where we were in the middle of last year”.
Ms Gaines was speaking at the tail end of a stellar 2019 when the company’s share price doubled and kicked again last week to close at $10.72 on Friday, the highest point since 2008 when Fortescue founder and chairman Andrew Forrest farewelled its first iron ore shipment to China.
While Vale’s production woes in Brazil since a deadly tailings dam disaster early in the year have pushed up iron ore prices, Ms Gaines said the market was recognising Fortescue’s operational excellence, the addition of higher iron content West Pilbara Fines to its product mix, and was also starting to factor in major growth initiatives.
“I just think the combination of strategy, a strong market and strong demand is supporting the share price,” she said.
“We are also recognised now as a company that has a balance sheet in great shape and can deliver significant returns to shareholders.”
WA is the centre of mining excellence and innovation in the world so maybe we are getting some recognition for that.
— Elizabeth Gaines, Fortescue Metals Group
Ms Gaines said Fortescue would stick to its strategy of strengthening the balance sheet and delivering significant returns to shareholders after paying record dividends in 2018-19.
Analysts are also starting to factor in growth from Fortescue’s $US1.27 billion Eliwana mine – expected to produce its first ore late in calendar 2020 – and the $US2.6 billion Iron Bridge magnetite project, with both forecast to improve the iron content of its overall product offering.
The strength of the iron ore market and vastly improved price realisation slashed Fortescue’s net debt to $US500 million at September 30, down from $US2.1 billion at June 30 and $US7.4 billion only four years ago.
While Fortescue’s mainly lower grade fines product was selling at a big discount to benchmark iron ore prices in 2018, the gap closed this year with the company receiving 89 per cent of the benchmark price in the September quarter.
Fortescue said throughout the period of heavy discounting for lower iron content product that the market was cyclical and would turn despite claims from competitors that the change was structural.
Ms Gaines said Fortescue maintained its view in the face of emerging signs of another widening in price discounts.
“We have said previously that we thought it was cyclical and there will be periods where some of those spreads might be wider, if there is some additional supply say from India of that lower iron content ore, but that tends to be fairly seasonal as well,” she said.
“The spreads will go through various cycles but I don’t think two or three weeks of a certain direction indicates anything that should be of any concern.
“We don’t focus so much on trying to predict where the spread might land, but we are very focused on our cost position and optimising our margins, and in this market we are generating very healthy margins.”
Fortescue was the second best performing stock in the global S&P 1200 index this year and New York-based Fortune magazine named Ms Gaines runner-up to Microsoft’s Satya Nadella as its business person of the year.
Ms Gaines said it was significant that Fortescue as a mining company based in Western Australia could make either of those lists.
“We are a mining company and there are various views around the longer term outlook for mining and the other aspects but this I think is a terrific recognition of our industry.
“WA is the centre of mining excellence and innovation in the world so maybe we are getting some recognition for that.”
Source: Australian Financial Review
FMG Price at posting:
$10.81 Sentiment: Buy Disclosure: Held
(20min delay)