Fortescue blazes the trail of denial

From the AFR this morning:

Packer family lieutenant Ashok Jacob, who runs fund manager Ellerston Capital, has likened the rise and fall of the iron ore price to the boom and bust of technology stocks and Japan’s 1980s bubble economy.

…“You are not going to move on to a new glorious outcome in terms of commodity prices…The big ticket capex [in China] has been spent. Now the marginal return on new capital spending is going to be pretty close to zero.”

…Fortescue Metals Group is shedding more than 1000 staff as part of an attempt to create a competitive cost base in the new price market.

“No one anticipated the sharp fall in iron ore prices and the prolonged nature of the fall,” Fortescue said in a note to employees last week.

Nobody anticipated the end of the iron ore boom…

It is going to be quite painful to listen to this refrain from the Australian elite for the next few years.

David Llewellyn-Smith
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  1. Nobody anticipated the end of the iron ore boom…

    Isn’t a CEO paid millions precisely for the opposite of that – to anticipate stuff that nobody else anticipates???

    IMHO, shareholders of FMG are getting a bad deal with an overcompensated, but pedestrian CEO. But then, Twiggster is the largest shareholder. I think he gets what he deserves.

    • “…I think he gets what he deserves.”


      A bloke gets a company off the ground with a vision to make it a force in the resources sector, employs thousands, promotes indigenous employment, takes on the majors, builds a rail line, power stations and endures public humiliation by a second rate politician not mention having come back from being knocked to knees post GFC – and you sit there in the comfort of your armchair and spout venom.

      [Deleted final comment – would not make it past the mod]

      • I re-read my comment several times to see where the “venom” is. Anybody else see the “venom”? By virtue of being a majority shareholder, Twiggster got what he deserves – an incompetent CEO.

        On balance, your pathetic attempt to twist my comment around is ..well.. pathetic.

        • I appear to have misread your ‘intent’ re Twiggy, thinking your comment related to FMG, not Power. However “venom” I based on vast literature of your previous comments where retribution and collapse, even (figuratively speaking) death have been indulged.

          • Thanks for the climb-down.

            Re the 2nd part, I don’t even have to refer to the vast vast literature of your previous comments… EVERYBODY just KNOWS you are a professional corporate astroturfer.

          • Exactly Mav. One can only hope that the astroturfing division is part of the 1000 cuts and 3d1k’s drivel no longer pollutes the online information channels.

            PS has he tried to defend Gina Boganhardt’s recent comments yet about mining wages & ‘working harder and drinking/smoking less’ to get ahead in this country? You know, as opposed to inheriting your billions and paying peanuts in tax?

  2. “It is going to be quite painful to listen to this refrain from the Australian elite for the next few years”

    I am sure the elite with come up with some excuse and blame something/someone else.

    • I know a quick way to shut them up.. ask any elite who says they didn’t see this coming to give back their bonuses.

      They are very quick to take credit for the upside, but on the downside, “nobody saw it coming” and let’s fire all the little people to cut costs and maintain profitability.

  3. A long way from fitting the description of Australian elite I know, but it was nonetheless nauseating to hear a typically smug Marcus Padley suggest exactly that on Inside Business this week.

  4. Not too sure of the point of this article HnH.

    Curious that Jacob now comes out and issues warnings on both China and commodities – now that concern on both these fronts is entirely mainstream – where were these words of wisdom a month ago, six months ago, twelve? The bandwagon is on a roll!

    In regard to anticipating the end of the mining boom there seems little benefit in labouring the point to excess. Mining companies have to make long-term best analysis decisions – a project taking several years to completion – as I’ve said before always an inherent risk for those experienced in the resources sector. A natural part of the cycle. Over time these investment decisions will prove wise indeed.

    Treasury/RBA taking the long-term positive view and allowing the boom to run entirely correct – has been a major good to the nation.

    Politicians attempting to appropriate the profits of the sector, to spend these unreceived funds on a range of government handout programs now embedded into the welfare cycle a major mistake. Almost every day another massive unfunded ‘motherhood’ scheme announced – might have to curtail some of these!

    • My point is that as the ore price structurally corrects over the next few years, the people who failed to factor risk management into their planning should get fired.

      It’s pretty simple.

      • Rubbish. Resource companies model comprehensive risk strategies, but it remains that at a certain point a call must be made to proceed, or not. Long lead times permit no other option – you either do or you don’t. Commodity cycle volatility would benefit from a crystal ball.

        Politically – what is the problem? The government will have to re-assess position, retreat from some policy announcements and life goes on. Simple. 🙂

        • If there’s no structural decline in ore then there are no consequences to face.

          If there is then there is and those that failed to see it coming should be held to account.

          It’s complicated only by your salary as a paid mining astroturfer.

          • Not at all. Commodity cycles are volatile, that is a given. Investment decisions need be made with information to hand and best analysis as to future direction. Resources companies understand risk management perhaps better than any given their operating environment. In some way it’s an optimist’s business! There’d be few great resource projects anywhere without the get-go approach. In the midst of GFC BHP invested billions in WAIO, an investment many risk averse would have declined – the investment paid off handsomely, very handsomely.

            People fail to ‘see’ many things. Punishment is both ridiculous and futile – the world would grind to a halt mired in excess cautiousness and indecision.

          • That commodity prices are volatile is exactly my point. That those elites that forgot that simple truth should be held to account is not hard to understand.

            Arguing this with you is clearly a bit silly. You’re paid to obfuscate this simple point.

          • HnH. All business decisions carry risk…

            More interestingly, who are these “elites” – the ones that should get fired.

          • Not if you are a big, diversified multinational. It is the only possible approach for a junior miner. Fortescue, like many companies before it, is struggling with the transition. A new skill set is required that may be in short supply in their management ranks.

            Time will tell if they can manage to pull it off.

          • Firstly, I have no involvement with the mining industry spent my working life in the investment game (shares) without the use of computer models.
            I have to agree with most of 3d1k’s on this particular topic & am of the view that some comments tend to espouse envy toward the better off sectors of our community (I’m not one of them) rather than expressing a considered opinion for debate.
            Considering the lead times for new/expanded mining projects, exacerbated by red/green tape & union activities increasing cost over-runs, I’m surprised any mining venture gets off the ground.
            Mining companies probably do factor downturns into their planning but the magnitudes, durations & timing may not be correct. Show me someone who has always been right in respect of all these factors in advance of a downturn/reversal in markets. Can economists or fund managers get these factors right, at best they may get 1/2 right.
            Considering the disparity of economists views, at any given time, they can’t & as for fund managers, even if they get it right, they can’t outperform especially when markets turn down. Money is easy to make in a rising market.
            Our problem with the miners is that we as a nation have sold off the resources instead of developing them ourselves & I think this will come back to haunt us especially as we are currently living way above our means.

      • the people who failed to factor risk management into their planning should get fired.

        How do we know this is what happened?

        Business inherently involves taking risk. It is possible to be wrong because you were right, as well as wrong because you were wrong.

        Shareholders expect management to take some risks. Sometimes they do not pay off. Sometimes the company even goes broke. That is part of the risk you accept when becoming a shareholder.

        If you can’t stand the heat, get out of the kitchen.

        • Gillard requested some of the finest “minds in mines” (she’ll like that!) to assist in negotiating the new and vastly improved super profits tax. She got the best.

          • Umm … Why?

            Aren’t they mining CEOs?

            CEOs are not paid on the basis of being right all the time. If they were, no business would ever get done.

            All you folk who seem to think it was all too obvious and Fortescue is run by incompetent fools, perhaps you should offer your services to mining companies as analysts. If you’re as good as you say, you should get handsomely rewarded for your skills.

    • Let me correct that last paragraph for you, silly billy. You just can’t seem to get it right !

      “Politicians attempting to strike a balance between fairer taxation of companies enjoying historical windfall profits, and the historical imperative of maintaining a civil and just society that is facing a global retracement in the levels of consumer demand that have hitherto underwritten our increased standards of living, will continue to find their endeavours undermined by vested interests – some of whom driven by deeper ideological motives than the base preservation of what are arguably unrealistic and unsustainable levels of profit. Almost every day in the government’s ongoing task of balancing their political, economic and social objectives, they are confronted by the endless bleating of corporate propagandists – might have to find a way of curtailing some of these !”

        • That’s never stopped you. It’s all just one big, long, intertwined thread, anyway. Have you ever stopped to ponder the life of an Oompah Loompah and its parallel to Fortescue ?

          Were there fly-in, fly-out Oompahs? Were they unionised ? Did the cleaning costs for those pristine uniforms come out of their weekly pay ? What would those zany little orange confectioners get up to in those long restless nights after mess hall, choir practice, touch football and a few beers at trivia night ? I don’t remember seeing too many lady Oompa Loompahs getting about Mr Wonka’s factory. It does make you wonder what kind of exhausting diversions management was required to provide to stop the Oompahs from contemplating excursions up the chocolate suction pipes.

          • “…It’s all just one big, long, intertwined thread, anyway.”

            Agree. As for the rest – sounds like FIFO is right up your….alley….given an apparent predilection for suction pipes, chocolate and otherwise.

    • Almost every day another massive unfunded ‘motherhood’ scheme announced – might have to curtail some of these!

      Yeah, public education, dental care and mental care are just frivolous wastes of time and money. No benefit to society there at all.

      • The schemes may or may not be of benefit to society. They sound nice, warm and appropriately fuzzy. What has been announced is too nebulous to form any concrete opinion. Suspect the education reform will not work. Dentists will be pleased. Disability needing much more explanation, as does the Aged Care reform.

        All largely unfunded, putting cost burden on existing and future taxpayers with undefined benefit.

        Sir Ken Robinson: Changing Education Paradigms