Who is China’s preferred supplier of Iron Ore?

Here is a chart comparing the stock prices of Iron Ore’s Big 4 to the 62% grade Iron Ore price.

Rio Tinto is cuddling more sympathetically to iron ore’s recent decline.

Fortescue is next.

BHP less so.

VALE being the least.

The percentages that these stock prices are tracking Iron Ore’s price may be a representation of each company’s mine localities, corporate domicile, national allegiance or perhaps ‘politics’.

It may be a the market’s interpretation of who China may see as their preferred supplier?

October 30, 2022

by Rob Zdravevski


Iron Ore, China, Australia and the U.S.

What if the U.S. requests (instructs) Australian companies to not sell Iron Ore to China anymore?

After all, it’s being done amongst the semiconductor industry.

Does Australia comply in line with its signed security pacts?

The price of 62% Iron Ore (as traded in Singapore) closed at $81.00.

I’ll look for $76.00 price early next week.

This latent weakness correlates well with the leading weakness seen in the AUD/USD.

And Iron Ore related equities are dancing in tune as well.

The risk (or opportunity) lies in the answer to the question posed at the beginning of this note.

October 28, 2022

by Rob Zdravevski


More downside risk in FMG

At the moment, FMG’s stock price is testing an important support line. 
A pending bounce in price is NOT the main game. 
I’m expecting a path to $15 mark into a March-April 2022 timeframe 
to where the 200 week moving average will be at that time.

August 18, 2021
by Rob Zdravevski


Is Fortescue in trouble?

Lately, Australian iron ore miner, Fortescue Metals (FMG), has seen increasing speculating whether it will breach loan covenants or require more capital due to the fall its stock pice has suffered as a result of the decline in the spot iron ore price.

Depending what index you happen to watch, iron ore has fallen 40%-50% in the past 6 weeks.

Keeping with this blog’s mantra, “Trying to Hear What Is Not Being Said – It doesn’t matter what the iron ore price does week-to-week. The multi-year and decade demand for iron ore is stronger than the supply pipeline, especially with the scarcity of capital and expanding project costs to extract and ship it.

Furthermore,  I don’t think that analysts fully take into account the iron ore reserves that FMG has. It seems they take the market capitalisation of $10 billion and look at its $8.5 billion of gross debt and start scaremongering. In fact, FMG has $2.3bn in cash, so it’s “net” debt is $6.2 billion.

Did you know that in the 2012 financial year, FMG had revenues of $6.7 billion and its EBITDA was$2.8bn? It’s net debt is less than 3 years worth of EBITDA, which is not a stretch considering its debt is priced at 600 basis points over the benchmark and is rated BB-.

FMG’s bonds aren’t trading at levels that indicate default or bankruptcy. I actually wish that they were trading at woefully large discounts as it would b a great investment opportunity. In fact, the upside for FMG’s debt is that their credit rating improves and their cost of borrowing drops and they subsequently re-finance.

I can’t say that FMG equity is dirt cheap but if you align yourself with its founder, owning the equity would be a more attractive than its “not quite cheap enough” debt.

Fortescue won’t fold or “go under”, irrespective of what ratings agencies have to say. In fact, Australia’s Labor government (who will most likely be re-elected in 2013) would be wise to stop bashing the iron ore miners and be prepared to shift their stance to being more supportive.

Imagine if Fortescue fails as a company? Directly and indirectly, FMG is responsible for (and has created) thousand of jobs. If government is bailing antiquated automobile manufacturers, it better get ready to support the iron ore industry.

Don’t they know that they would have a bunch of unhappy Chinese on their hands!

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