FMG delivered a solid December-quarter update last week, which we didn’t cover at the time. The market took it as a mild negative, and the stock drifted lower – not materially, but enough for it to lag BHP and Rio, which have traded well over the past week, helped by their exposure to the likes of copper.
December-quarter highlights:
- FMG delivered record first-half iron ore shipments, alongside strong realised prices, reinforcing the durability of its core hematite business.
- Hematite shipments of 48.3Mt were in line with expectations.
- C1 costs of US$19.10/wmt were above consensus, reflecting a higher strip ratio and timing differences between production and sales. Importantly, management expects this to unwind in the second half and has maintained FY26 guidance of US$17.50–18.50/wmt.
- Realised prices were strong at US$92.88/dmt, equivalent to 88% of the Platts 62% index, with low-grade discounts remaining tight.
FMG’s newer Iron Bridge project continues to ramp up, with shipments of 2.2Mt increasing quarter-on-quarter. While volumes remain below nameplate, the project is targeting 22Mtpa by FY28. Iron Bridge is a transformational asset for FMG. It is capital intensive and takes time to optimise, but once fully ramped, it should lift average realised prices, improve earnings resilience, and enhance FMG’s strategic relevance as demand shifts toward higher-grade, lower-emissions iron ore. Encouragingly, realised pricing in the quarter was 102% of the Platts 65% index, which should support margins as volumes scale.
Another key theme is FMG’s decarbonisation strategy, which we think is moving from a cost headwind toward a medium-term tailwind. A 250MWh battery energy storage system is now operational at North Star Junction, with 4–5GWh planned across the network. Electric mining equipment is being deployed, including 12 electric excavators and two 14.5MWh electric locomotives. While decarbonisation spend is expected to peak in FY27–FY29, the replacement of diesel and gas should begin to lower C1 costs over the next 12–24 months.
Guidance was unchanged, with FY26 shipments of 195–205Mt (including 10–12Mt from Iron Bridge on a 100% basis). Capex remains on track at US$3.3–4.0bn for metals and US$300m for energy in FY26. The balance sheet is very strong, with net debt of just US$1.0bn, providing ample flexibility through the cycle.
The key swing factors for FMG remain iron ore prices and discount dynamics. We have been more constructive than most on iron ore, with prices holding comfortably above US$100/t despite high port stocks, the Simandou ramp-up, and patchy Chinese growth.
- We continue to see FMG as well-positioned to generate strong earnings and cash flow while iron ore prices remain resilient. That said, after a strong run, we are a little cautious in the near term and would prefer to add on weakness rather than chase the stock above $22/share.
MM mildly bullish and long FMG ~$22
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