Forrest answers critics and lives to fight another day
One year after a spectacular liquidity crisis Fortescue is back on course but still has many debt challenges to overcome, writes Peter Ker.
One year after a spectacular liquidity crisis Fortescue is back on course but still has many debt challenges to overcome, writes Peter Ker.
This time last year, Andrew "Twiggy" Forrest was nursing a broken heart.
His iron ore empire had momentarily lurched into crisis, and scores of his loyal lieutenants had been retrenched on the spot.
"My heart breaks for the people we have had to let go. They are paying a high personal price for something that is necessary," he told Fairfax Media, almost exactly one year ago.
With iron ore prices sliding far beyond expectations, Fortescue was temporarily selling iron ore at a loss, forcing its share price down by 30 per cent in the space of two weeks.
As liquidity dried up, billions of dollars worth of expansion plans were deferred, and the deathly silence of a four-day trading halt allowed rumours of Fortescue's demise to run rampant.
But if Forrest's heart was broken at that moment, it certainly wasn't defeated.
"We have to emerge from this with a company that is fitter and stronger to make sure that we really have built a multi-generational business," he said, at the height of last year's storm.
A year on from that spectacular liquidity crisis, and Forrest's first wish already appears to have been achieved.
Fortescue is enjoying an indian summer of sorts on the unexpected strength in the iron ore price.
The company is leaner in terms of total iron ore production costs, which are already about 25 per cent lower than the same time last year thanks to some new low cost mines bringing down the average across the company.
Fortescue's export volumes are 40 per cent stronger, growing the revenue pile by 21 per cent in the 2013 financial year.
All expansion projects have resumed, and the spend on growing iron ore production rates from 55 million tonnes to 155 million tonnes annually will be complete by December, a year earlier than originally planned.
"All those things in combination have given us a lot more strength," Fortescue boss Nev Power said this week. "We are definitely a fitter and stronger company today than we were 12 months ago."
But Forrest's second wish, to turn Fortescue into a "multi-generational business" remains unfulfilled, and if it is to be achieved, the iron ore miner will have to thrive between a rock and a hard place.
Fortescue has about $US12 billion of gross debt sitting just beyond the horizon, and will have to repay that over a nine-year period in which iron ore prices are universally tipped to decline.
Fortescue's most high-profile critic, New York hedge fund manager Jim Chanos, believes that combination of factors could create a "witches brew" that brings Fortescue to its knees.
"This is a company that has made a one-way bet on one commodity," he told BusinessDay this month, in a rare interview. "The iron ore miners have made a big bet that demand is going to continue increasing meaningfully in China."
Arranged by JP Morgan and Credit Suisse during the height of last year's crisis, Fortescue's debt was structured in a way to give the company a three-year repayment holiday before the first $US2 billion worth of unsecured notes fall due in November 2015.
But once the repayments start, things get rather hectic for the company that calls itself the "third force" in iron ore; more than $US9 billion falls due a three-year period ending in June 2018.
The biggest slug comes in the second half of 2017, when a $US5 billion credit facility matures.
The schedule is rounded out with $US1.5 billion worth of notes due to be repaid in 2019 and a further $US1 billion in 2022.
"If you have a fair bit of debt like that, it's pretty good for focusing your attention," quips Ian Burston, who served on the Fortescue board between 2008 and 2011.
Initially, many members of the local investment community believed Fortescue would have to sell crucial assets, such as a stake in its port and rail infrastructure, to raise the billions of dollars needed.
"We continue to believe that Fortescue is over-geared and that asset sales will be required to reduce longer term funding risk. We maintain our sell rating," said former CLSA analyst Hayden Bairstow, in a note to clients after Fortescue had restructured its debt last September.
But gradually the sentiment turned, helped by a strong rally in the iron ore price over summer and strong production in the Pilbara. A 10 per cent easing of the Australian dollar further helped Fortescue's cause.
By the time Fortescue's full-year results were published last month - showing a $US1.74 billion profit for fiscal 2013, plus the promise of 65 per cent more iron ore production in fiscal 2014 - there was almost unanimous belief that Fortescue could not only meet its debt obligations, but do so without selling down assets.
Citi analyst Clarke Wilkins says confidence really firmed around mid-August, when Fortescue earned $US500 million upfront - along with some other bells and whistles - by selling down a stake in some mostly forgotten magnetite assets to Taiwanese steelmaker Formosa.
"I would describe it as the final nail in the coffin in terms of perceptions around the (transport infrastructure) sale proceeding in the near term," he says.
About $US7.7 billion of Fortescue's debt can be repaid early, and Fortescue confirmed this week that the first of it - $140 million worth of preference shares - will be repaid on November 11.
"Just meeting the maturities is not going to be enough for the market, the market wants them to repay it ahead of schedule, which is certainly what they intend to do," Wilkins says.
With spending on expansion projects coming to an end over the next three months, Fortescue can soon devote the bulk of its profits to paying down debt, and analysts expect the company to make between $3 billion and $4 billion worth of profit before the debt schedule gets busy in November 2015.
Credit ratings agency Moody's has already improved its view of Fortescue's Ba3 credit rating from negative to positive, and further improvements in that space will allow Fortescue to access cheaper debt and make a serious dent in its obligations.
"We forecast Fortescue to maintain solid liquidity, which will assist to mitigate the company's exposure to inherently volatile iron ore prices," Moody's vice-president Matthew Moore says.
"The ratings could be upgraded if Fortescue's expansion plans are completed on time and within budget. Any steps taken to reduce debt, either through asset sales or internally generated cash flow, will have a positive impact on the company's credit profile and apply further positive pressure on the current rating."
Citi's forecast for iron prices to average $US115 per tonne over the next couple of years is well above the $US75 per tonne they estimate Fortescue needs to be able to meet its first debt obligation in 2015.
Analysts at Goldman Sachs estimate Fortescue needs an iron ore price of at least $US90 per tonne over the next three years to meet its debt obligations.
Macquarie has also chimed in, saying Fortescue had "almost weathered the funding storm", while the UBS analyst team says based on current forecasts, they "don't foresee any issues with FMG repaying its debt".
Burston, who now leads Nigerian-focused iron ore miner Kogi Iron, says the common depiction of Forrest and Fortescue as a club of high-stakes gamblers who rolled the dice on the iron ore price is unfair and unwarranted.
"They are not just throwing $100 each way on the last race," he says.
"If you look a bit closer than that, they are doing their homework and they are making moves in accordance with that research and their beliefs.
"They are very focused, they are sincere about what they do and they researched it properly, so if there is a bit of courage in there as well that only adds to the flavour of the stew, because it sells the view to the market that they know what they're doing, they're getting on with it and they're going to make it work. So far that seems to be proving to be the case."
But Chanos, for one, remains unconvinced.
Chanos made headlines in Australia during last year for his scathing assessment of Fortescue's debt profile and its reliance on the Chinese growth story.
A noted China bear, Chanos told a conference in Manhattan in April last year that Fortescue was a "value trap" that was too reliant on China's debt-fuelled growth.
"With any kind of reversion to the mean of iron ore prices to $US100 per tonne or less, we're going to see a dramatically lower ability to service the debt and the capital programs they have. And a stock price materially lower than it is today," he said, presciently, last year. His comments inspired an army of short sellers who rode the stock down to its nadir about the time of the September liquidity crisis, when almost 8 per cent of Fortescue shares were sold short.
"That vindicated our view on Fortescue, which we are still short on," Chanos said this month.
"If you can go into a debt crisis when iron ore prices are well above your cost of production, then what's going to happen if iron ore prices really revert to the mean?"
Chanos' views ultimately stem from his belief that China's credit boom - which has seen debt as a percentage of GDP soar close to 200 per cent - is unsustainable.
Much of the China boom has focused on the construction of apartment towers, bridges and other types of infrastructure that require steel, and the vast majority of Fortescue's iron ore is sold into that build-up.
With no other commodities to diversify Fortescue's business, Chanos reckons that if the Chinese build-up is unsustainable, so too must be Fortescue's highly geared exposure to it.
No matter how many Australian investment banks declare confidence in Fortescue's ability to service its debt, Chanos indicated that his view of Fortescue is not about to change any time soon.
"If you believe as we do strongly that the Chinese credit driven investment boom has to ultimately come to no good, then there is probably no better place to be short than iron ore," he says.While the big miners expect Chinese demand for iron ore to continue growing until 2030, the rate of growth appears to have slowed over the past 18 months.
With the world's four biggest iron ore exporters - Rio Tinto, BHP Billiton, Fortescue and Brazil's Vale - all ramping up their export volumes, Chanos believes the extra supply will eventually force iron ore prices down to levels that will trouble Fortescue.
"Keep in mind the increase (in iron ore supply) we have seen since last year hasn't been that big. The big ones are the next two years coming, that's when the real supply hits, so that's when I think it's going to be interesting looking forward," he says.
Estimates published by JP Morgan this week mostly support that suggestion. After increasing by 92 million tonnes during fiscal 2013, JP Morgan expects total exports from all Australian iron ore companies to rise by 130 million tonnes in fiscal 2014.
It expects iron ore prices to fall in each of the next three years, though all three years are tipped to have iron ore prices above $US100 per tonne.
ANZ expects the price to still be above $US100 per tonne in 2016, but Goldman Sachs expects it to average $US80 per tonne by 2015.
"You have China toward the end of an insane real estate and infrastructure build that cannot continue and you've got all kinds of new (iron ore) supply coming onto that market, so you could very much have a 'witches brew' here of new supply hitting as demand begins to drop and reflecting in (iron ore) prices that head back down toward historical levels which would put a number of companies back into real financial stress," Chanos says.
Back in the Pilbara this week, Power wasn't sounding like a man who had fretted all night about the direction of the iron ore market.
"I'm ticketyboo, thank you," he says, as he spoke from a lookout above Fortescue's new low cost Solomon development, which has helped drag down the company's unit costs.
When told that Chanos is still pessimistic about Fortescue's chances of survival, Power says he never had the opportunity to fully explain the Fortescue story to Chanos.
"I've never caught up with him personally, but I think Jim and a number of people in the US who are in these short funds are trying to make money out of negative stories and they try to talk their own book; they try and spook people and scare the market into believing the worst about a company so they can make money out of shorting the stock," he says.
"It's not a very constructive trade they ply, is it? I doubt we are ever going to convince people like that because what they are trying to do is generate an opportunity for themselves to make money."
With the majority of local observers now predicting Fortescue can survive its debt challenge, Power says those who doubted Fortescue were gradually being silenced.
"We had the doubters out there, but slowly and surely we're silencing them by doing what we said we were going to do," he says.
"People are starting to see that we do deliver against what we say we are going to do, and that's building the credibility and is being reflected in the sentiment in the market."
Ten years after it was formed and five years after its first ore was shipped to China, Power says there is no reason why Fortescue can't continue to be an iron ore force for many decades to come.
"We have already identified over 15 billion tonnes of iron ore in the Pilbara, we have a massive area of tenements that we are still exploring and we are adding to that resource base at about the rate of 1.5 billion tonnes per year," he says.
"We've built infrastructure that is absolutely world class. It is infrastructure that will serve the company, and the country for that matter, for many many decades to come.
"I think the foundation we are building for Fortescue is absolutely multi-generational."
This time last year, Andrew "Twiggy" Forrest was nursing a broken heart.
His iron ore empire had momentarily lurched into crisis, and scores of his loyal lieutenants had been retrenched on the spot.
"My heart breaks for the people we have had to let go. They are paying a high personal price for something that is necessary," he told Fairfax Media, almost exactly one year ago.
With iron ore prices sliding far beyond expectations, Fortescue was temporarily selling iron ore at a loss, forcing its share price down by 30 per cent in the space of two weeks.
As liquidity dried up, billions of dollars worth of expansion plans were deferred, and the deathly silence of a four-day trading halt allowed rumours of Fortescue's demise to run rampant.
But if Forrest's heart was broken at that moment, it certainly wasn't defeated.
"We have to emerge from this with a company that is fitter and stronger to make sure that we really have built a multi-generational business," he said, at the height of last year's storm.
A year on from that spectacular liquidity crisis, and Forrest's first wish already appears to have been achieved.
Fortescue is enjoying an indian summer of sorts on the unexpected strength in the iron ore price.
The company is leaner in terms of total iron ore production costs, which are already about 25 per cent lower than the same time last year thanks to some new low cost mines bringing down the average across the company.
Fortescue's export volumes are 40 per cent stronger, growing the revenue pile by 21 per cent in the 2013 financial year.
All expansion projects have resumed, and the spend on growing iron ore production rates from 55 million tonnes to 155 million tonnes annually will be complete by December, a year earlier than originally planned.
"All those things in combination have given us a lot more strength," Fortescue boss Nev Power said this week. "We are definitely a fitter and stronger company today than we were 12 months ago."
But Forrest's second wish, to turn Fortescue into a "multi-generational business" remains unfulfilled, and if it is to be achieved, the iron ore miner will have to thrive between a rock and a hard place.
Fortescue has about $US12 billion of gross debt sitting just beyond the horizon, and will have to repay that over a nine-year period in which iron ore prices are universally tipped to decline.
Fortescue's most high-profile critic, New York hedge fund manager Jim Chanos, believes that combination of factors could create a "witches brew" that brings Fortescue to its knees.
"This is a company that has made a one-way bet on one commodity," he told BusinessDay this month, in a rare interview. "The iron ore miners have made a big bet that demand is going to continue increasing meaningfully in China."
Arranged by JP Morgan and Credit Suisse during the height of last year's crisis, Fortescue's debt was structured in a way to give the company a three-year repayment holiday before the first $US2 billion worth of unsecured notes fall due in November 2015.
But once the repayments start, things get rather hectic for the company that calls itself the "third force" in iron ore; more than $US9 billion falls due a three-year period ending in June 2018.
The biggest slug comes in the second half of 2017, when a $US5 billion credit facility matures.
The schedule is rounded out with $US1.5 billion worth of notes due to be repaid in 2019 and a further $US1 billion in 2022.
"If you have a fair bit of debt like that, it's pretty good for focusing your attention," quips Ian Burston, who served on the Fortescue board between 2008 and 2011.
Initially, many members of the local investment community believed Fortescue would have to sell crucial assets, such as a stake in its port and rail infrastructure, to raise the billions of dollars needed.
"We continue to believe that Fortescue is over-geared and that asset sales will be required to reduce longer term funding risk. We maintain our sell rating," said former CLSA analyst Hayden Bairstow, in a note to clients after Fortescue had restructured its debt last September.
But gradually the sentiment turned, helped by a strong rally in the iron ore price over summer and strong production in the Pilbara. A 10 per cent easing of the Australian dollar further helped Fortescue's cause.
By the time Fortescue's full-year results were published last month - showing a $US1.74 billion profit for fiscal 2013, plus the promise of 65 per cent more iron ore production in fiscal 2014 - there was almost unanimous belief that Fortescue could not only meet its debt obligations, but do so without selling down assets.
Citi analyst Clarke Wilkins says confidence really firmed around mid-August, when Fortescue earned $US500 million upfront - along with some other bells and whistles - by selling down a stake in some mostly forgotten magnetite assets to Taiwanese steelmaker Formosa.
"I would describe it as the final nail in the coffin in terms of perceptions around the (transport infrastructure) sale proceeding in the near term," he says.
About $US7.7 billion of Fortescue's debt can be repaid early, and Fortescue confirmed this week that the first of it - $140 million worth of preference shares - will be repaid on November 11.
"Just meeting the maturities is not going to be enough for the market, the market wants them to repay it ahead of schedule, which is certainly what they intend to do," Wilkins says.
With spending on expansion projects coming to an end over the next three months, Fortescue can soon devote the bulk of its profits to paying down debt, and analysts expect the company to make between $3 billion and $4 billion worth of profit before the debt schedule gets busy in November 2015.
Credit ratings agency Moody's has already improved its view of Fortescue's Ba3 credit rating from negative to positive, and further improvements in that space will allow Fortescue to access cheaper debt and make a serious dent in its obligations.
"We forecast Fortescue to maintain solid liquidity, which will assist to mitigate the company's exposure to inherently volatile iron ore prices," Moody's vice-president Matthew Moore says.
"The ratings could be upgraded if Fortescue's expansion plans are completed on time and within budget. Any steps taken to reduce debt, either through asset sales or internally generated cash flow, will have a positive impact on the company's credit profile and apply further positive pressure on the current rating."
Citi's forecast for iron prices to average $US115 per tonne over the next couple of years is well above the $US75 per tonne they estimate Fortescue needs to be able to meet its first debt obligation in 2015.
Analysts at Goldman Sachs estimate Fortescue needs an iron ore price of at least $US90 per tonne over the next three years to meet its debt obligations.
Macquarie has also chimed in, saying Fortescue had "almost weathered the funding storm", while the UBS analyst team says based on current forecasts, they "don't foresee any issues with FMG repaying its debt".
Burston, who now leads Nigerian-focused iron ore miner Kogi Iron, says the common depiction of Forrest and Fortescue as a club of high-stakes gamblers who rolled the dice on the iron ore price is unfair and unwarranted.
"They are not just throwing $100 each way on the last race," he says.
"If you look a bit closer than that, they are doing their homework and they are making moves in accordance with that research and their beliefs.
"They are very focused, they are sincere about what they do and they researched it properly, so if there is a bit of courage in there as well that only adds to the flavour of the stew, because it sells the view to the market that they know what they're doing, they're getting on with it and they're going to make it work. So far that seems to be proving to be the case."
But Chanos, for one, remains unconvinced.
Chanos made headlines in Australia during last year for his scathing assessment of Fortescue's debt profile and its reliance on the Chinese growth story.
A noted China bear, Chanos told a conference in Manhattan in April last year that Fortescue was a "value trap" that was too reliant on China's debt-fuelled growth.
"With any kind of reversion to the mean of iron ore prices to $US100 per tonne or less, we're going to see a dramatically lower ability to service the debt and the capital programs they have. And a stock price materially lower than it is today," he said, presciently, last year. His comments inspired an army of short sellers who rode the stock down to its nadir about the time of the September liquidity crisis, when almost 8 per cent of Fortescue shares were sold short.
"That vindicated our view on Fortescue, which we are still short on," Chanos said this month.
"If you can go into a debt crisis when iron ore prices are well above your cost of production, then what's going to happen if iron ore prices really revert to the mean?"
Chanos' views ultimately stem from his belief that China's credit boom - which has seen debt as a percentage of GDP soar close to 200 per cent - is unsustainable.
Much of the China boom has focused on the construction of apartment towers, bridges and other types of infrastructure that require steel, and the vast majority of Fortescue's iron ore is sold into that build-up.
With no other commodities to diversify Fortescue's business, Chanos reckons that if the Chinese build-up is unsustainable, so too must be Fortescue's highly geared exposure to it.
No matter how many Australian investment banks declare confidence in Fortescue's ability to service its debt, Chanos indicated that his view of Fortescue is not about to change any time soon.
"If you believe as we do strongly that the Chinese credit driven investment boom has to ultimately come to no good, then there is probably no better place to be short than iron ore," he says.While the big miners expect Chinese demand for iron ore to continue growing until 2030, the rate of growth appears to have slowed over the past 18 months.
With the world's four biggest iron ore exporters - Rio Tinto, BHP Billiton, Fortescue and Brazil's Vale - all ramping up their export volumes, Chanos believes the extra supply will eventually force iron ore prices down to levels that will trouble Fortescue.
"Keep in mind the increase (in iron ore supply) we have seen since last year hasn't been that big. The big ones are the next two years coming, that's when the real supply hits, so that's when I think it's going to be interesting looking forward," he says.
Estimates published by JP Morgan this week mostly support that suggestion. After increasing by 92 million tonnes during fiscal 2013, JP Morgan expects total exports from all Australian iron ore companies to rise by 130 million tonnes in fiscal 2014.
It expects iron ore prices to fall in each of the next three years, though all three years are tipped to have iron ore prices above $US100 per tonne.
ANZ expects the price to still be above $US100 per tonne in 2016, but Goldman Sachs expects it to average $US80 per tonne by 2015.
"You have China toward the end of an insane real estate and infrastructure build that cannot continue and you've got all kinds of new (iron ore) supply coming onto that market, so you could very much have a 'witches brew' here of new supply hitting as demand begins to drop and reflecting in (iron ore) prices that head back down toward historical levels which would put a number of companies back into real financial stress," Chanos says.
Back in the Pilbara this week, Power wasn't sounding like a man who had fretted all night about the direction of the iron ore market.
"I'm ticketyboo, thank you," he says, as he spoke from a lookout above Fortescue's new low cost Solomon development, which has helped drag down the company's unit costs.
When told that Chanos is still pessimistic about Fortescue's chances of survival, Power says he never had the opportunity to fully explain the Fortescue story to Chanos.
"I've never caught up with him personally, but I think Jim and a number of people in the US who are in these short funds are trying to make money out of negative stories and they try to talk their own book; they try and spook people and scare the market into believing the worst about a company so they can make money out of shorting the stock," he says.
"It's not a very constructive trade they ply, is it? I doubt we are ever going to convince people like that because what they are trying to do is generate an opportunity for themselves to make money."
With the majority of local observers now predicting Fortescue can survive its debt challenge, Power says those who doubted Fortescue were gradually being silenced.
"We had the doubters out there, but slowly and surely we're silencing them by doing what we said we were going to do," he says.
"People are starting to see that we do deliver against what we say we are going to do, and that's building the credibility and is being reflected in the sentiment in the market."
Ten years after it was formed and five years after its first ore was shipped to China, Power says there is no reason why Fortescue can't continue to be an iron ore force for many decades to come.
"We have already identified over 15 billion tonnes of iron ore in the Pilbara, we have a massive area of tenements that we are still exploring and we are adding to that resource base at about the rate of 1.5 billion tonnes per year," he says.
"We've built infrastructure that is absolutely world class. It is infrastructure that will serve the company, and the country for that matter, for many many decades to come.
"I think the foundation we are building for Fortescue is absolutely multi-generational."
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Frequently Asked Questions about this Article…
What triggered Fortescue’s liquidity crisis and how did the company recover?
Fortescue’s crisis was driven by a sharp slide in iron ore prices that briefly forced the company to sell ore at a loss, a rapid fall in its share price and a four‑day trading halt. Recovery came from a stronger iron ore price, lower unit costs (about 25% down thanks to new low‑cost mines), a 40% rise in export volumes, resumed expansion projects and targeted asset sales that improved cashflow and market sentiment.
How much debt does Fortescue have and what does its repayment schedule look like?
The article reports roughly US$12 billion of gross debt. The debt package included a three‑year repayment holiday before the first US$2 billion of unsecured notes due in November 2015. More than US$9 billion falls due in the three‑year period ending June 2018, with the largest single maturity a US$5 billion facility in the second half of 2017. Additional items include about US$1.5 billion of notes in 2019 and roughly US$1 billion in 2022. Around US$7.7 billion of debt can be repaid early, and Fortescue planned to repay US$140 million of preference shares on November 11.
Can Fortescue realistically meet its debt obligations, according to analysts?
Analysts are divided but many are cautiously confident. Citi, Macquarie and UBS expressed confidence that Fortescue can meet repayments without selling core assets, helped by recent profits and strong production. Citi forecasts iron ore around US$115/tonne over the next couple of years, while Goldman says Fortescue needs about US$90/tonne to be comfortable. Moody’s has improved its view on Fortescue’s Ba3 rating from negative to positive, noting solid liquidity. However, some critics, like Jim Chanos, remain skeptical and continue to short the stock.
Why do some investors worry about Fortescue’s exposure to iron ore and China?
Critics argue Fortescue is essentially a one‑commodity play heavily exposed to Chinese steel demand. If China’s construction and infrastructure boom slows or global supply increases (from Rio, BHP, Vale, etc.) push iron ore prices down toward historical levels, Fortescue’s ability to service its high debt could be impaired. That concentration risk is why investors closely watch iron ore price forecasts and Chinese demand.
What operational improvements has Fortescue made to reduce costs and boost production?
Fortescue reduced average unit production costs by about 25% year‑on‑year, helped by new low‑cost mines such as the Solomon development. Export volumes rose roughly 40%, lifting revenue by about 21% in fiscal 2013. The company accelerated expansion plans to lift capacity from around 55 million tonnes to 155 million tonnes a year, completing that spend earlier than originally planned.
What role did debt restructuring and asset sales play in Fortescue’s recovery?
During the crisis, Fortescue restructured debt with JP Morgan and Credit Suisse to secure a three‑year repayment holiday. It also sold a stake in magnetite assets to Taiwan’s Formosa, earning about US$500 million upfront, which improved liquidity and investor confidence. These moves helped avoid, at least initially, selling core transport infrastructure and gave the company time to complete expansion and generate cash to pay down debt early where possible.
How has the credit market reacted to Fortescue’s progress?
Credit agency Moody’s moved its outlook on Fortescue’s Ba3 rating from negative to positive, noting improved liquidity. Moody’s said further upgrades could follow if expansion plans are completed on time and within budget and if Fortescue reduces debt through asset sales or internally generated cash flow — all of which would lower borrowing costs and improve the company’s credit profile.
As an everyday investor, what should I watch if I’m considering Fortescue stock?
Key things to watch are iron ore price trends and analyst forecasts (Citi, Goldman, JP Morgan, ANZ have differing views), Fortescue’s quarterly profits and free cash flow, completion and cost discipline on expansion projects, progress on early debt repayments and any further asset sales, changes to credit ratings (Moody’s), and Chinese steel demand. These factors drive Fortescue’s ability to service debt and the stock’s risk/reward profile.
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