Is the commodity supercycle dead, or just sleeping? That's more than just a rhetorical question when it comes to Australia's Fortescue Metals Group (OTCQX:FSUGY).
On
one hand, it seems hard to believe that China will re-accelerate its
infrastructure and capital spending programs to such a degree as to
bring back the commodity glory days of just a few years ago, not to
mention there's a lot more supply online now to deal with it. On the
other hand, Chinese steel mills still source a lot of their iron ore
needs from high-cost domestic mines that simply cannot compete with
Brazilian and Australian imports.
In the case of Fortescue, I
believe there are multiple factors that should drive a higher multiple.
The company has passed the point of peak spending and peak debt, and yet
offers an attractive simultaneous one-two punch of rising output and
falling costs. Fortescue also has a rich pool of resources that should
continue to add to reserves, not to mention a strong owned and operated
infrastructure network. Although the shares have already nearly doubled
from the midsummer lows, I believe Fortescue could climb another 40% and
still be undervalued relative to its larger peers in iron ore mining.
Continue here to the full article:
If There's Any Life Left In Iron, Fortescue Ought To Do Well
No comments:
Post a Comment