Jeez. What a dreadful state the AFR is in. Its iron ore coverage today is as ignominious as it is wrong.
First up, the obsequious “Boss” magazine, whose primary role is to myth-make around CEOs as Nietzschean ubermensch, does a spectacular lipstick job under the title of “How Nev Power saved Fortescue”:
NEV POWER should have been flying high. Doing the rounds of investors in Sydney’s financial district one Thursday morning late last August, the Fortescue Metals Group chief executive talked up the record $US1.6 billion net profit and $A125 million dividend that had been unveiled a week earlier.
But investors were nervously watching the iron ore price, which had plunged precipitously from $US135 a tonne at the end of June to $US88.70 a tonne that day.
…“Nobody saw this coming,” Power says of the price fall. “It caught steel mills. It caught everybody and I think there was a lot of surprise and shock that went through the system that the iron ore price had fallen so fast.
True enough, nobody at the AFR saw it coming. It was too busy polishing the alter of the overman. Which is itself the problem. We have the paper that failed to ask any questions, worshipping the man whose business plan failed, because the paper failed to ask any questions. Now that’s post modern media!
Not satisfied, the AFR‘s then spreads the love to the other iron ore majors in the day’s headline story, “BHP, Rio confident of Asian interest”:
Rio Tinto chief executive Sam Walsh has defended plans to spend up to $US5 billion on further expansions of its mining operations in the Pilbara despite its largest independent shareholder, BlackRock, and other large institutional investors expressing doubts.
“We need to invest in the best projects,” he said after the miner’s annual meeting in Sydney on Thursday. “These need to be robust projects and in the Pilbara we do come with the advantage that we are the lowest cost producer proximate to the largest growth market.”
During an analyst briefing in Sydney this week, Mr Walsh suggested that barring a “black swan” event in North Korea, the miner was likely to approve an expansion of its Pilbara operations to 360 million tonnes of annual capacity from the 290 million tonnes expected by the third quarter this year.
…Mr Walsh said Rio had already committed to billions of dollars of spending on port and rail to take its infrastructure capacity to 360 million tonnes a year that would be wasted if the corresponding mines were not approved. Rio also had to consider the views of its joint venture partners, mostly Japanese trading houses.
“It is something that we will be assessing in the latter part of this year,” he said.
And herein lies the truth for those not already unconscious from the perfume. The fate of the aptly named Mr Power, who is no doubt a nice man as well as a “tall and physically imposing” Thor-like figure, is not his own. In fact, he is helpless. He must proceed with expansion plans to lower his costs of production but even so he can only deliver iron ore in the low $80 per tonne range. Rio’s expansion will deliver the same dirt in the mid $20 range. In doing so it will drive down the price of said dirt to a sustainable $80 or so, rendering Mr Power a helpless babe in the woods as Rio gobbles up his firm.
I am a fan of FMG’s bold efforts over the past decade to bring competition to iron ore but I caution investors against confusing this with divinity.
There is one final irony here. The AFR is itself replicating the Fortescue business model by doling out willy nilly its high cost commodity – reputation – and in the process losing pricing power.
