Fortescue Metals Group Ltd (FMG)

By Jason Fittler

FMG is an iron ore production and exploration company with assets located in the Pilbara region of Western Australia.

FMG has a tenement holding of around 88,000 sq. km. FMG currently holds reserves of over 2.2Bt of hematite ore within the region.

FMG's resource base currently stands at 15.6Bt, with H1FY13 total ore mined and ore shipment of 35Mt and 35.7Mt respectively.

Fortescue Metals Group announced it has issued a voluntary Notice of Redemption to holders of the A$140m Redeemable Preference Shares, marking the first step in the Company's strategy to reduce its debt.

The Preference Shares were issued on 30 September 2008 and were part of the company's original project financing structure. The Preference Shares, which have a fixed coupon of 9%, will be redeemed in their entirety on 11 November 2013, at the principal value plus any accrued unpaid interest.

FMG has a laden debt book which makes is less appealing then BHP or RIO.

The balance sheet is in a weak position and cash costs above the industry average.  This coupled with the poor quality and discount iron ore means that the margins are volatile. 

FMG may be more at risk if prices and volume growth soften.

At the current price of $4.26 the company looks overvalued.

Our fair price on the company is $2.20.

At the current levels taking profits and reducing your exposure makes sense. 

For more information on Fortescue Metals Group Ltd (FMG) please contact us on 07 4771 4577.