Fortescue prints another ripping quarter

From FMG’s Q2 production report:

 Fortescue’s average realised price was US$64.87/dmt for the quarter, a 91.7% realisation on the Platts 62 CFR index after adjusting for timing differences associated with provisional pricing. Price realisations are expected to average 85-90 per cent over FY17

More of the same. Printing money with an all-in break even at $30CFR. Great realised price indicating how strong Q4 iron ore demand was. Another decent year and this thing is going to be debt free. Extraordinary.

I still think FMG’s iron ore output will have to be rationalised long term but with the debt collapsing that raises the prospect of it being able to build out into other businesses and/or launching aggressive capital management. That’s what I’d do. Being an iron ore pure play is for the birds.

Given FMG has a $20bn capitalisation, the market is still discounting big falls in iron ore ahead. If it were to average $70 then FMG will pump out in the order of $6bn and its multiple is borderline cruel.

Even at iron ore $50 it can still produce $3bn and will be on a more reasonable P/E.

Overburden removal is increasing and it’s no doubt still high-grading its butt off so in the long run costs are to rise quite a lot. As well, the iron ore price has a bad habit of running down to FMG’s break even costs when it needs to shake out more tonnages and with that in prospect later this year I wouldn’t go long (my ill-fated mid-2016 short is still in force until mid this year!).

But for now the former WA laughing stock is a stellar example of mining excellence.