The disastrous Fortescue chart

A quick note on a few FMG points as iron ore continues to fall. Dalian today:

First, what a horrible chart FMG has with an immense double top:

How far FMG corrects obviously depends upon the iron ore price. My best guess is we’re going back to $60 over the next six months, with a 20% FMG grade discount that’ll be more like a $50 sales price.

My guess is FMG cash breakevens are around $20 unadjusted for grade so that still gives it $30 per tonne. At 200mt (allowing for its forthcoming expansion) that’s $6bn income in 2023. After-tax earnings of $4bn.

At a forward multiple of 7x, which is roughly the sector average, that’s $28bn valuation or roughly half today’s price.

The iron ore price is still falling much faster than the mining equities so we’re still going through what I refer to as the “coconuts phase” of the commodity correction when the market refuses to believe the obvious.

The only thing I can see that prevents these further price adjustments is another Brazil accident or further Chinese stimulus of scale specifically for the property development sector which is nowhere in sight.

Then again, Twiggy says FMG is not an iron ore stock so who knows!

Houses and Holes
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  1. Twiggy is an elon wannabe. What a wanquer. Twiggy wants to become carbon neutral cos his daughter wants him to. Dont follow Twiggy into the hydrogen thing he has going. I assume he has just got alot of yes men around him.

    • MountainGuinMEMBER

      At least with the hydrogen thing we have an example of a large Australian company trying to read the future market and to innovate and invest.
      Will it pay off? Who knows. But we need a few gambles to underpin future wealth and our immigration and houses model will run out of steam at some stage.

      • Green hydrogen is a farce. The EROEI (Energy Return On Energy In) calculation shows the amount energy required to crack it into oxygen and hydrogen is massive and definitely not carbon neutral.

        You need an EROEI 14:1 to run modern civilisation.
        Hydrogen scores a negative. Waste of time and energy.
        Hydro is the best at 40+

        • A 100% efficient electrolyser requires 39 kWh of electricity to produce 1 kg of hydrogen. Havent seen many viable sources yet, Hydro, Solar, wind, geothermal all require building first.

          • MountainGuinMEMBER

            A kg of hydrogen has 33kwh of energy so there are losses in making it and some losses in using it. But with cheap daytime power energy losses can be well compensated in a place like Australia esp for short term storage and usage.

        • Personal Risk ToleranceMEMBER

          Misinformation. Aside from the fact that EROEI cannot be negative by definition, the analysis is wrong because hydrogen is an energy carrier rather than an energy source.

          The best comparison is LNG; the energy content of LNG is less than the energy content of the gas flowing in to the LNG plants, just as the energy content of hydrogen is less than the energy content of the electricity input.

    • Hate Twiggy if you must, he has been written off from day one.
      I believe what he has achieved of his own back is Absolutely incredible. To build one of the most valuable mining companies in the world, must be in the top 5, I’m guessing in under 15 years is mind-blowing. To build his own mines, railways and port infrastructure without the backing of the mainstream is amazing. FMG also pioneered a new mining technique that liberated the iron ore at Christmas Creek and Cloudbreak. With out this new mining method these deposits would still be in the ground. And all this with b grade iron ore deposits. If anyone can build green steel or green hydrogen it will be Twiggy. Twiggy’s energy drive and dynamism is mind-blowing, I can’t think of anyone else who could have achieved what he has in mining by themselves without the backing and support of the mainstream. The bloke is incredible, a champion of Aboriginal employment and gives away a vast percentage of his wealth. He also provides immense wealth to this country through thousands of jobs taxes and royalties. He is far from a wanker???
      With that said I do agree the FMG share price has further to fall, but it won’t fall like it did in 2015.

    • Display NameMEMBER

      Someone has aquired the former first law officer. I would suggest they have done their dough. Cannot believe that Porter thought what he did was reasonable in any way shape or form disregarding if the move was legal or not.