Targeted cost savings of $300 million per year as well as the capex reduction of $1.6 billion over 2013 will definitely help boost the company’s balance sheet and ease possible concerns over funding issues, but the market looks far from convinced.
In fact, judging by the market action elsewhere in the sector it looks as if traders are seeing it more as a stock specific story. The big diversifieds in Rio Tinto and BHP Billiton are both trading higher, possibly indicating that the two are in much better positions to weather the storm from a further deterioration in the iron ore operating environment. Rightly so, too, as their income streams are much more diversified and balance sheets stronger when compared to the highly leveraged Fortescue Metals Group.
At the end of the day, it was only last week that Fortescue chief executive Nev Power confirmed that the miner would be able to fully fund its expansion plans without the need to raise further capital. After initial positivity, the market now looks to be seeing his backflip as an admission of further deterioration in the iron ore operating environment.