Fortescue ‘worthless’ at current ore prices

Advertisement

More scuttlebutt on Fortescue this afternoon, via The AFR:

Fortescue’s stock is worthless at current spot iron ore prices, analysts at CBA calculate. Zippo, zilch…

There is $US7.5 billion ($11.5 billion) in net debt squatting on Fortescue’s balance sheet. In Aussie dollar terms, that’s approaching twice the company’s market capitalisation – just a number, sure, but an ugly one.

The combination of a single commodity focus, high debt and skinny margins makes Fortescue a massively leveraged play on the iron ore price…

“Although Fortescue correctly points out that it has no debt due until 2017, the 2017 notes have a first call date in April 2015″…CBA analyst Andrew Hines [said] in a recent note…

“Bond markets price these notes on the assumption that they will be called on the first callable date. If Fortescue does not redeem the 2017 notes next month, then it may find bond markets demand even higher yields for any future bond issues.”

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.