From UBS:
FMG hosted an investor visit from 23-24 Oct 13 to the Christmas Creek, Kings and Firetail mines, and the port and rail facilities at Port Hedland. Key takeaways were:
1. Market confidence in China is high but FMG see near term iron ore price risk, 2. D&A to step up above market forecasts as Kings comes on line, 3. annual profit to be recognised from infrastructure prepayment from Formosa, and 4. expansion to 180Mtpa looks likely with capex largely earmarked for it.
Higher D&A hits earnings. Expansion to 180Mtpa adds $1ps Earnings decline in FY 14/15 by 4%/13% as a result of higher D&A. In FY 16 earnings are +18% to US$2,110m reflecting assumed ramp up to 180Mtpa. FY 17 is seen as the first full year in which FMG ships 180Mt, with said run rate to be achieved in JQ 16. With the construction of the 5th berth, outloading capacity rises to ~180Mtpa. We estimate a capex bill of ~US$1bn for +25Mtpa of capacity (US$40/t), which adds ~$1ps to our NPV.
UBS forecasts an iron ore price of $100 for the next year and upgraded FMG to buy. Another 25 million tonnes added to the deluge. It will want to be low cost.
