Fortescue ‘worthless’ at current ore prices

More scuttlebutt on Fortescue this afternoon, via The AFR:

Fortescue’s stock is worthless at current spot iron ore prices, analysts at CBA calculate. Zippo, zilch…

There is $US7.5 billion ($11.5 billion) in net debt squatting on Fortescue’s balance sheet. In Aussie dollar terms, that’s approaching twice the company’s market capitalisation – just a number, sure, but an ugly one.

The combination of a single commodity focus, high debt and skinny margins makes Fortescue a massively leveraged play on the iron ore price…

“Although Fortescue correctly points out that it has no debt due until 2017, the 2017 notes have a first call date in April 2015″…CBA analyst Andrew Hines [said] in a recent note…

“Bond markets price these notes on the assumption that they will be called on the first callable date. If Fortescue does not redeem the 2017 notes next month, then it may find bond markets demand even higher yields for any future bond issues.”


  1. With all this speculation around about the value of FMG, one would have thought that FMG would have some sort of press release assuring the punters that all is well.
    I note Luke Forrestal is the media guru there and he was never short of a story when at the AFR.
    Maybe the lead has run-out of his pencil.WW


    “Andrew Forrest’s call to ease iron ore production to boost its ailing price was careless – but the reaction has been over the top, the West Australian premier says.

    The Fortescue Metals chairman made the comment at a business function in China this week, prompting the competition watchdog to launch an investigation, concerned the call may be in breach of laws covering cartel behaviour.
    Twiggy Forrest’s cap idea has been labelled ‘hare-brained’ in some quarters.

    Twiggy Forrest’s cap idea has been labelled ‘hare-brained’ in some quarters. Photo: Erin Jonasson

    Colin Barnett said there had been an over-reaction to Mr Forrest’s idea, including by Rio Tinto chief executive Sam Walsh, who labelled it a “harebrained scheme” and “absolute nonsense”

    The oddity of this entire exercise is the ACCC has got involved in this specific issue, but there is currently a Potato war occurring in WA. Potato growing here is regulated by the potato board (yes there is such a thing) who are currently attacking a local grower for refusing to reduce the amount of potato’s he is growing and driving the price down. He will likely be prosecuted for giving his excess potatoes away to the needy and hungry via charities who are lining up to get them for free.

    This is Barnetts WA.
    Prosecute a man for giving away excess food to the homeless and hungry and the charities that feed them.

    I weep for the future of this country.

  3. Therefore, FMG trading at $2.00 means the market is rigged. Explains AF’s harebrained scheme.

  4. A WA potato cartel, a rice cartel, wine export licences, beef export licences, no wonder twiggy was confused, this country has a bit of trouble with free markets.

  5. Fortescue is far from worthless and its just plain silly to suggest it is worthless.
    In the current environment FMG trades more like a long dated option than an’s “value/worth” is therefore similar to the value of an option.

    As much as commentators here portray themselves to be experts on Iron Ore, truth is the biggest factor driving IO prices and therefore FMG’s value is the whims of the Chinese govt. During the GFC we saw IO prices in free fall and then China primed the pump, and oh how they primed that pump. The rest is history IO shot up to $180 USD and all miners (large and small) were printing money with each ship load that left the docks. Honestly have any of us such insight that we can divine the intentions of the Chinese rulers, minus this divine insight FMG continues to have value you just cant calculate it with any sort of discounted cash flow model.

    BTW Trading FMG is not for beginners: to be effective you’ll need to understand the messages being sent by obscure movements of the bond market, you’ll also need to understand the EXACT Terms and Conditions associated with already issued bonds because the whole party can grind to abrupt halt if these T&C’s are violated.