From Credit Suisse:
■ Site visit: Las week we attended FMG’s annual site visit. It was very well attended but with fewer equity market representatives than we’d expected. Two years ago the focus was to where capacity could be lifted but this time around the message was about productivity improvements and the ability to hold costs to a low level. This is a business that has moved to maturity at a remarkable rate. There was no change to cost/capex/prodn guidance. Incremental improvements in the performance of the ore processing plants might see some reduction in lifeof-mine strip ratios from 2.1x but we got no sense of how much might be achieved. A reversion to life of mine strip ratios adds >US$3/t to mining costs and remains a long run Achilles heel compared to peers. A largely fully automated truck fleet across all operations seems an inevitability given the 20% productivity improvements achieved at Kings. Earnings estimates are unchanged at this stage. The risk to full year sales guidance of 165-170mt seems to be the upside unless the upcoming cyclone season proves less benign that last year.
■ China steel prodn set to moderate: red flags for iron ore include i) recovered China steel inventory, ii) approaching seasonal demand weakness plus iii) a sharp downturn in steel company profitability with Tangshan billet producers now losing around US$30/t. We expect China steel prodn to fall by around 7% into November.
