Fortescue Metals (FMG) & new IPO LIS

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Question asked 02/10/2021

Fortescue Metals (FMG) & new IPO LIS

Hi James and team, Two questions from me so please be brief where you see fit. I currently have no exposure to iron ore and the last week you have discussed how you are liking the iron ore space but are quite hamstrung due to the portfolio’s current exposure to BHP. My question is do you at iron ore at current levels is a solid entry point or do you see some potential further downside risk? Also which would be your preferred exposure in the space moving forward. (General Advice Only)My second question relates to a lithium company which IPO’d this week LIS. IPO price was 85c and managed to top out above $3 on the day of listing. There seems to be a lot of interest in this company and was just wondering your thoughts on the company and if it was a lithium company on MM’s radar. Kind Regards, Jack

Answer

Hi Jack,

Obviously I’ll treat the 2 very topical questions separately:

If we were carrying no iron ore exposure MM would be looking to accumulate the below 2 names around current levels with a more split weighting. I.e we have 9% currently in BHP with ~70% of it’s earnings generated from Iron Ore, meaning we have around 6.3% exposed to the bulk commodity. At these levels we are comfortable with having that level of exposure.

As a pure play Fortescue (FMG) looks great “back foot” buying into weakness under $14, we would initially expect at least a 15-20% bounce when the tide turns.
For higher quality more diversified exposure we like BHP Group (BHP) in the $35 region – MM currently holds BHP.

In terms of the new listing Li-S Energy (LIS), they valued the company at $544m when raising $34m in fresh equity at 85c, already has a market cap of $1.18bn after commencing trading on the ASX this week. They are into lithium-sulphur, which is the past has been too volatile for battery and electronic product makers, but it is has some redeeming qualities if it can be stabilized. Clearly this is a hit area and if they make this work, the company has a bright future. It’s speculative at this stage – similar to Calix (CXL) in that regard that we hold in the Emerging Companies Portfolio. At this stage MM prefers the more established lithium exposures IGO ltd. (IGO) which we hold and Pilbara Minerals (PLS) which is obviously a more conservative stance.

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Fortescue Metals (FMG)

LAST UPDATED 02/10/2021 07:40

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