Running a multi billion company is not like running a small business, you have to consider so much more factors that affact the business. In any business, the bottom line is always MARGIN. Even though FMG is now the lowest IO producer to China, but does it guaranty it holds this title for next 10 years? BHP/RIO/VALE have all cut cost and reduced debt, and they are continue to do so, if FMG don‘t reduce debt , it cannot hold this title for long. ATM, interest account for around $3 / wmt cost, that is a lot easier to do so than cutting, say C1 cost to US$10. New ships are also helping to reduce shipping cost, from page 11 of the report , shipping has improve underlying EBITDA by US$29 or US$0.34 / wmt, and that is just with 1 new ship.
I believe while the sun is shinning, pay off as much debt as possible is a wise thing to do, because when time is tough, not having a big debt hanging over the business is a blessing. FMG didn‘t over spend on dividend which may not please a lot of investors ST, but it‘s yield is still higher than peer average, and a lot of cash left over to pay more debt, as early as this week.
Give FMG another 4 months to accumulate this massive cash flow, once US$2B more is repaid this FY. We should see FMG comes out with a forward plan for FY18.
DYOR.
Frank.
FMG Price at posting:
$6.57 Sentiment: Buy Disclosure: Held
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