From Deutsche:
We retain our SELL on valuation (A$1.44/sh) and high debt levels.
The dramatic drop in Life of Mine (LOM) strip ratios continues. Average 20 year LOM strip ratios are now expected to be 2.3:1 at the Chichester hub and 1.7:1 at Solomon. This has again been achieved through “blending and beneficiation” which has enabled a further reduction in cut-off grades “while maintaining and improving final product specifications”. We continue to believe that over time product grade will likely suffer as a result of lowering the cut-off grade at the Chichesters and chasing lower strip near surface deposits along strike (such as the Kangaroo pit at Cloud Break). Cloudbreak was running at 4:1 on last October’s site visit, down from 6-7:1 from a few years prior. To get to 2.3:1 across the Chichesters, Cloudbreak must now be running closer to 2.5:1. Arguably the product strategy has changed with CB now producing the 56.5% Fe “Super Special” fines which is a separate product from the “Fortescue blend”. However we still believe that over time that the current strategy will result in a drop in head grade, plant recoveries and product grade. We model an increase in the average group strip ratio to 2.8:1 by 2020 and a drop in the average product grade to 57% Fe.
And from The Australian:
Fortescue raised to Neutral from Sell at UBS and to Outperform from Underperform at Credit Suisse.
Credit Suisse analysts said the move was a result of the 25 per cent price correction in the last month.
UBS cited the same price fall, also raising their price target to $1.75, from $1.70 previously.
“The FMG share price has declined 37 per cent in the last 2 months as the iron ore price has retraced 20 per cent over the same period,” UBS said in a note today.
“At least for now while there are more marginal players on the cost curve, FMG may continue to make a margin and get to pay down its debt assuming prices stay above US$50/dmt cfr as we forecast, and don’t track down towards its new cost base.”
