From Morgan Stanley:
Shipped tonnes a positive event: Fortescue has reported shipping over 15Mt in August (over 180Mtpa annualised) demonstrating once more sprint capacity at the port. We retain a FY15 forecast of 155Mt Total oreshipped vs guidance of 155-160Mt, while acknowledging risk is to the upside. Once the ‘cyclone season’ (Dec-Feb) has passed we’ll have a clearer view on the FY15 potential.
Production tonnes not specified: Although the company made reference to record production in the month the actual tonnes mined and processed weren’t disclosed. So we can’t assume the OPFs (ore processing facilities) and rail carried 15Mt. Stockpiled ore (5.2Mt MSe at 30 June) may have been run down.
Average ship size was notable: 15Mt shipped in 82 shipments averages 185kt per vessel – an impressive level that implies regular use VLOC (very large ore carriers) which have larger capacity than the regular 175kt capesize vessels.
Volume and price sensitivity: If the FMG ships 160Mt (vs MSe 155Mt) the additional 5Mt the revenue impact is the same as a 3.5% move in the Index price. And at the EBITDA line it is similar to ~2% index price move. The last index price of US$87/t is 7.5% below our existing FY15 forecast of US$94/t – however, our Commodities Team has recently written about how it expects the price to recover to mid-90’s level once seasonal effects pass.
Final comment: The ability to deliver above design level tonnes reduces our concern around short term production disruptions over FY15. And while we have identified the upside leverage through volume the greater leverage lies in price, and more specifically the realised price.
They are “underweight” FMG.
