My bullish calls on copper producers Hudbay Minerals (NYSE:HBM), Taseko (NTGB), and First Quantum (FQFLV) have definitely worked out, but the same cannot be said of Fortescue Metals (OTCQX:FSUGY)
as a roughly 30% decline in benchmark iron ore prices and wider
discounts have sapped the company's earnings and cash flow leverage.
I
believe Fortescue can stay free cash flow positive at or above realized
prices of $70/mt, but there's a major valuation difference between
"survive" and "thrive" and the behavior of Chinese steel mills is not
encouraging for the near term. While there are smaller Australian iron
ore companies with even more leverage to an iron ore price recovery,
Fortescue is a good way to play that basic thesis. I believe the market
is factoring in a pretty bearish long-term outlook for iron prices, but
this is a risky stock given its reliance on stronger prices.
Continue here:
Iron's Free Fall Has Rusted Fortescue Metals
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