Fortescue recently released quarterly numbers as well as another updated presentation today from the Macquarie conference. FMG’s share price has been getting a beatdown lately, I think largely due to the lower Q3 production, increase in C1, and low revenue realisation.
But the company continues to spew out masses of cash – $1.4B USD in HY18, and NPAT of $681M USD. That’s around 8x earnings for a business that will continue to generate money for the next century and is currently suffering difficult operating conditions.
There is currently a significant gap between the Platts 62 price and FMG – thanks to China’s desire to limit pollution during their winter by focusing on higher cost ores. I would expect to see a reversion to the mean, either by a change in policy, more ore being processed in India, or new technology improving the useability of lower-grade ores.
Just in case that doesn’t happen, the new Eliwana development will improve FMG’s blended content to 60% Fe. As I wrote in my original post, while FMG is not a perfect business, they are very cheap, and will be profitable throughout the commodity cycle. I continue to hold my shares, average buy around $4.95. There is room to buy more although I’ll probably build up more cash reserves waiting for better opportunities. In the meantime I plan to sit back and continue to collect the dividends, as I watch how the landscape develops.