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EYE-BALL Guru on – “Twiggy” – What went wrong?

September 17, 2012
Latest GURU Posts:

12th Sept: – The “Window” of life nobody wants to look through

19th Aug: – The ‘Lucky Country’ Tag – if you say it enough it must be true –

Aug 18th: – The Value of the A$ – Part II – another report from ‘The Australian’s’ David Uren –

Aug 15th: – The Value of the A$ – Part I – a report from ‘The Australian’s’ David Uren –

Aug 3rd: – Media Economic Commentary on June 2012 Retail Sales Figures – just naive …

Aug 2nd: – The Rise of the Australian $ – Finally someone from Academia Land agrees –

July 30th: – Greece – – Should they be allowed to leave the Eurozone –

July 27th: – Superannuation – a great big rip-off – Part III!!!

July 19th: The “LIBOR” Scandal …Part III – Banks a conduit for crime and corruption!!!

July 14th: – Link to Part IIThe LIBOR Scandal … The Banks are in Trouble … again!!!

July 8th: – Link to Part IThe LIBOR Scandal … about to explode …

July 7th: – The “CARBON v CLIMATE CHANGE” Debate – Part I – OIL and its Contribution –

June 15th: – The GFC – the right of reply … the right to question …

June 8th: – A Global Economic Snapshot …

June 6th: – Treasurer SWAN just won Lotto …

To see more GURU posts:

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– “Twiggy” – What went wrong?
| Author: EYE-BALL Guru |17th Sept 2012 |
Fortescue Metals (FMG) is currently in a ASX Trading halt based on speculation over its financial viability related to the recent fall in Iron Ore prices below US$120.

This speculation based on Iron Ore price alone is extreme given the price history of Iron Ore over the last 5 years and the equity price of FMG over the same time period.  5 yr charts for both FMG and Iron Ore are presented below.    [Click on images to enlarge in a new window.]

There is correlation between the Iron Ore price chart and the FMG price activity since the 2009 recovery in FMG’s share price.  The more relevant question was why the FMG share price was ar $12+ when Iron Ore prices were at US$60 pre GFC and why now the extreme concern over a fall below US$120.

The mystery in why Twiggy Forrest and his 33% owned FMG is under price pressure – is in why Forrest left FMG exposed to a price fall in Iron Ore.  Where was the hedge, the forward sales, the plan for price falls as Chinese demand weakened?

Market analyst’s who have determined that FMG survives or not be hinged to a US$120 Iron Ore price have their reasons – but given the project financing in place for FMG, there are other forces at play.

The FMG chart in isolation is weak – price action since the GFC has been corrective and the down spike happening at the moment indicates further falls ahead.   Combine the Iron Ore chart and it also points to more weakness.

What surprises as mentioned is why FMG is so vulnerable to a Iron Ore price fall at double the price of 2008 when the FMG price was trading at above $12.  The next few days will reveal some of the answers.

With Brazil and African mine developments due for production starts – the Chinese have reason to find cheaper markets given the value of the A$.   FMG Bankers are mainly Chinese and the pressure being applied is self-fulfilling.

As mentioned the next few weeks will be interesting.

Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.

The EYE-BALL Guru …

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