Is Fortescue Metals Group the new Tesla?

It’s a strange old world. A few months ago, Fortescue Metals Group was falling like a stone with the iron ore price. But, since then, it has gone sideways even as the iron ore price has hit new lows and other majors have kept falling, most notably RIO:

The 58% iron ore price, where FMG largely plays, has been falling slightly less fast than the 62% but discounts are still close to 40%:

Moreover, with expensive shipping, FMG may be getting about mid-$40s per tonne now (for spot sales at least, perhaps its contracts can lag price falls for a while).  This is in no way reflected in analyst estimates for NTM EPS which imply an FMG iron ore sales price of about $65 (at my best guess):

Nor is the outlook for iron ore improving. Quite the opposite.

Has FMG morphed into some Tesla-like speculative green stock around hydrogen with a climbing valuation multiple? I wish Twiggy Forrest the best of luck in that endeavour. He’s having a red hot go and doing stuff much more environmentally friendly than competitors like the east coast gas cartel.

However, the obvious risk is that the deteriorating iron ore outlook guts earnings long before any new businesses come onstream.

To be clear, MB Fund is very underweight all of the iron ore miners. 

Houses and Holes
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    • lolololol (ESG). So FMG are going to attract below market valuations, is that what you’re saying?

  1. ChristopherMEMBER

    Mining/Energy/Battery Chemical production companies with strong ESG credentials are going to continue to attract above market valuations.

    Look at Vulcan energy with its zero carbon lithium, Queensland Pacific Metals recently come out and said their Nickel sulfate production facility in Townsville will be carbon negative.

    Twiggy is clearly on to this and pushing his business that way.

      • DLS. I dont mind that you don’t understand Tesla and you are into the more pick and shovel type investment but don’t compare Twiggy to Elon. Elon has a track record across multiple industries (one of them actually is rocketed science) of been the best and has put his whole life and fortuneon the line for the last 15 years to save the planet.
        Twiggy digs up dirt and was in the right place at the right time, then Twiggy’s daughter says to him one day ‘ daddy your making to much smoke so Twiggy wakes up and says ok love, what ever you want, I will try to fix it.
        If you just put a little research into Tesla you would see WTF is going to happen. Elon is a genius and Tesla will be at 20,000 a share by 2030 and 100,000 a share by 2035.

        • TheLambKingMEMBER

          Elon is a genius

          I am 100% on-board with Telsa (that is mostly a battery company that makes cars to sell more batteries) and agree with a lot of the ‘crazy’ valuations. But I still won’t invest in Tesla – because while Elon is a genius, Telsa is worth much less without him, and he does have a roo loose in the top paddock, and some crazy action could wipe out the value of Tesla overnight.

          • Yes Elon is crazy and thankyou for your professional assessment. Unfortunately NASA doesn’t agree and that’s why they award Elon some of their most important contracts.
            Doesn’t really matter now cos if Elon died tomorrow Tesla is so far ahead of the competition and on the right trajectory its would be like Apple when Steve jobs died, to infinity and beyond.

          • IronorebustMEMBER

            But uses someone else’s batteries for their cars. Wow transformational. I think parallels between Twiggy and Elon are more than apt.

          • Iron ore bust. You are a fool if you believe any of the negative comments about tesla coming from MSM. And you don’t need me to tell you this. Just look at your share portfolio balance. If it doesn’t have tesla then your done. Instead of believing what you want about Tesla actually set aside a good 10 hours to do research on them and elon and see what you come up with. I did and I made heaps$. Its not to late.

    • lolololol (ESG). So FMG are going to attract below market valuations, is that what you’re saying?

      • ChristopherMEMBER

        I didn’t say it was going to be work but it is no coincidence that the Federal govt is talking about Hydrogen so much lately.

        • Hi Chris, I wasn’t laughing at the hydrogen stuff, I would have thought that was a good bet, but at the mention of ESG and FMG in the same sentence.

  2. It’s not clear to me the extent to which FMG has a cross-holding or exposure to the Fortescue futures business?

  3. Has anyone looked at the economics of hydrogen production? Certainly nowhere near the margins of IO at $200 per tonne. Maybe a decade until it’s viable.

  4. I think green Hydrogen could be used for seasonal storage. Large storages would probably be competitive with batteries now.
    On a micro scale, I think I could build a green Hydrogen generator, compressor and a seasonal storage system, for less that the cost of a powerwall.

  5. Meh… he’s a Boomer. I’ll take his money when the Currency collapses too.

    I’d invest in funeral homes but I think Australias Stockmarket is cactus. Although, the idea of profiteering everytime a Boomer dies is just so tempting. Your dividends would effectively be a composition of Baby Boomer death rates which would be so satisfying. I could be making money off Baby Boomer deaths. I’m surprisingly comfortable with that.

  6. The thing with Twiggy though is that everyone loves to have a shot at him over the years. There has been a lot of doubters, (myself included), and he’s proven all of us wrong. He’s an extraordinarily successful human being and you can’t put it all down to luck.

    He is not only backed by huge amounts of capital but now a hell of a lot of brains. Look at the speed at which they reduced their costs of iron ore production. Over the period of 15 years they made tremendous gains. Why couldn’t he succeed with Hydrogen?

    • Read Twiggys wiki page

      He’s an ex Hale school boy which produced the likes of Christian Porter.
      His grandfather and great grandfather were in the WA parliament and one of his great uncles was WA Premier.

      Then consider who Twiggy married. She is the daughter of one the founders of Christian group The Australian League of Rights – a far right, anti sematic political group. The also are monarchists and anti immigration. At one point the League tried to take over the National party in WA.

      Twiggy also breached the corporations act “finding that FMG and its Chairman and CEO, Andrew Forrest, had engaged in misleading or deceptive conduct and breached the continuous disclosure provisions in the Corporations Act, 2001,[36] by claiming to have binding contracts with China.[34]”

      So we have child of privilege, married to a right wing christian extremist, with a questionable moral code and excellent political connections.

      It appears Fortescue Metals price is held up by a cult of personality and influence, rather than iron ore fundamentals.