Fortescue Metals (FMG) reported Sept Q results with 40.2Mt shipped at a C1 cost of US$13.19/wmt (-14% on production, +8% on costs QoQ). Strip ratio’s increased to 1.6:1 (from 1.5:1) as overburden removal increased with planned access to higher-grade areas, with shipping of 60.1% Fe ores due in the late December Q. Gross debt remained at US$4.0bn (unch) and cash was higher at US$972m. The average received price of US$45/dmt implied a price realisation gap to the Platts 62 CFR of 33% (from 37% QoQ), a marginal improvement on the June Q. The advent of higher-grade ores is a net positive, as is the investment in automation, which is improving costs, but FMG continues to face weak macro headwinds for low grade ores which will continue to impact earnings until Eliwana comes on-line. HOLD recommendation maintained and we revise our target price to $4.31ps (prior $4.75ps).
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