Across client accounts, we have bought Fortescue Metals Group (FMG). FMG is a low-cost producer of iron ore with assets located in the Pilbara region of Western Australia. In addition to its iron ore assets, FMG owns and operates its own rail and port facilities, capable of exporting more than 170 mtpa of iron ore.
We are positive on the medium-term outlook for FMG for the following reasons:
- As one of the lowest cost producers of iron ore globally with long life, quality assets located close to key markets FMG is in a strong position to continue its strong operational performance and generate strong free cash flow through the cycle.
- Following significant debt reduction in recent years FMG’s balance sheet is now in a strong position giving the company flexibility to invest in growth options such as exploration or other value enhancing growth projects such as Eliwana or increase shareholder returns.
- The recent focus on pollution controls in the vital Chinese market has seen the continued decline of high cost, low quality Chinese production, which should provide medium term support for iron ore prices.
- Ownership of key infrastructure assets such as rail, power and shipping not only provides FMG with higher control over key cost inputs but puts them in a strong position within the region.
As with all investments it is not without risks which include FMG’s exposure as a single resource producer to volatility in the iron ore price, a slowdown in the iron ore demand from its key market in China and more general risks to production common to all resource companies.
If you have any queries, please contact SBB Wealth
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EP Financial Services Pty Ltd
ABN 52 130 772 495 AFSL 325 252 (“ELSTON”)
GPO Box 2220
Brisbane Q 4001