A stiff reaction to Fortescue’s (FMG) production report
Stock
Fortescue (FMG) $8.23 as at 25/07/2019
Event
Shares in Fortescue have struggled today against the backdrop of an iron ore equity sell off and a slightly soft quarterly. Despite the 5% drop today, shares in FMG have more than doubled this year, even before the inclusion of 90c worth of fully franked dividends.
The quarterly today came with huge expectation given the rally in the iron ore price so far this year, and Fortescue put up a valiant effort but just fell short of the lofty expectations. Iron ore production stormed home in the 4th quarter with record shipments of 46.6mt for the lower grade ore miner, taking the full year to 167.7Mt, bang in the middle of guidance – slightly below last year but as expected given the impact of cyclones.
Their new West Pilbara Fines, Fortescue’s new higher grade ore, accounted for 10% of shipments. This is expected to grow to around 20% of the company’s total over the next few years. This was just one reason the discount FMG received for their ore fell to 13% after peaking close to 45% late last year – the other being the global shortage of ore following the Vale disaster. At one point in the quarter, FMG had even negotiated a premium for some of their seaborne product – unthinkable just a few months ago!
Fortescue still have a net debt figure of $US 2.1b, but this number is well below the peak and very manageable if iron ore remains elevated.
Fortescue (FMG) Chart
Market Matters Take/Outlook
