Following its 2012 site tour of Fortescue’s operations, Morgan Stanley said it has increased confidence in its project delivery schedule, prompting it to increase its iron ore production for fiscal 2013 to 85Mt from 84Mt.
The broker believes this is possible if the production rate of 95Mtpa by end-2012 at its Chichester operation is achieved and is supported by approximately 3Mt of ‘early ore’ from Fortescue’s Firetail project.
Morgan Stanley believes the Kings Project development is likely to restart in December 2012 as iron ore prices have stabilised since the September trough, which was the reason for the deferral of the project. With a large amount of Kings development already underway or complete at Port and Solomon, the broker believes the current Firetail project workforce could be mobilised to Kings upon completion of Firetail.
Looking further ahead, the restart of Kings in December has seen Morgan Stanley up its production estimates for fiscal 2013 and '14 to 126Mt and 150Mt from 109Mt and 138Mt respectively.
On the back of increased earnings per share estimates, Morgan Stanley has upgraded Fortescue to overweight from equal weight. It also raised its target price by 20 per cent to $5.10 from $4.25.
Judging by the above chart, Fortescue looks to be readying itself for a retest of recent highs around the $4.30 level. After a textbook perfect pullback there now looks to be solid buying interest entering the market around the support and uptrend lines, which intersect around the $4 level.