Fortescue Metals Group (FMG)

[tulipbubble]

It is actually good news to the big 4 when those high cost miners (eg. those from China and small players) close down. Eventually output cut, and monopoly to the big 4. To me, there are still a lot of possibility for FMG, be it overtake the top 3 in term of production cost or output, or be a takeover target. Most importantly, I always have Mr. Buffet's quote in mind: 'Be Fearful When Others Are Greedy and Greedy When Others Are Fearful'.

I beg to differ.

The higher cost miners are also small in scale. Had a report that the amount of capacity to be commissioned by the major miners will be huge. Supply growth will be higher than demand. Need to search for it. Jim Rogers also suggest that mining boom will last every 15 years.

Furthermore, Vale has 220 millions tons of capacity uncompetitive at $70 (Dec 2014). Price has fallen again today at $55.

But one good thing is that the majors have lower costs per ton compared to the small miners. The only catalyst for price increase is that chinese demand recovers.

[valuebuddies]

A $183 million pipeline that will enable Fortescue Metals Group to lower costs by switching from diesel to gas at its Solomon Hub in the Pilbara has been completed.

https://au.news.yahoo.com/thewest/a/2676...completed/

Developer DPB Development Group said the 270km Fortescue River Gas Pipeline was finished about 10 weeks late under a tight schedule but met Fortescue's requirements.

It is the longest gas pipeline to be built in the Pilbara for a decade. The infrastructure connects Solomon to the Dampier-to-Bunbury natural gas pipeline, allowing the iron ore hub's 125 megawatt TransAlta power station to be converted. Solomon comprises the Firetail and Kings mines.

Fortescue has a 20-year, 100 per cent take-or-pay gas transportation agreement with DPB and joint venture partner TEC Pilbara, a subsidiary of Canadian power generator TransAlta.

DPB is a unit of ASX-listed DUET Group and controls the Dampier-to-Bunbury pipeline. The pipeline is the second DBP has built, after finishing the 110km Wheatstone Ashburton West Pipeline last December.

Chief executive Stuart Johnston said the Fortescue pipeline was one of the Pilbara's most important pieces of energy infrastructure.

"The FRGP will help meet the current energy needs of mining projects in Pilbara, as well as facilitating further development opportunities and facilitating both cost reduction and resource project export productivity," Mr Johnston said.

TransAlta chief executive Dawn Farrell said: "The completion of the pipeline provides an opportunity for future expansion in the Pilbara region and is consistent with TransAlta's strategy of growing in its core regions and diversifying its cash flows."

The main contractors on the FRGP project were Monadelphous KT and Enerflex Process.

[valuebuddies]

Fortescue's Andrew Forrest calls for iron ore production cap

http://www.afr.com/news/world/fortescues...324-1m6xlk

Andrew "Twiggy" Forrest has called on the world's big iron ore companies to announce publicly a cap on production in a bid to arrest declining prices, which have slumped more than 50 per cent over the past year.

He said the other major players, Rio Tinto, BHP Billiton and Brazil's Vale should also cap their production "and we'll find the iron ore price goes straight back up to US$70, US$80, US$90."

"I'm happy to put that challenge out there, let's cap our production right here and start acting like grown-ups," he said.

__________________________________

Don't seems to be good sign, it simply means that FMG wanted to end the battle as it can't sustain any further drop in IR prices. If the big 3 still in black, I don't see any reasons for them to cap the outputs knowing that one of their biggest competitor is about to out of game.

[specuvestor]

wow interesting... who is the whining kid not acting like "grown ups"?

The big 3 is doing what OPEC is doing to shale. That's how the game is played.

[greengiraffe]

Forrest’s call to cap ore output reveals Fortescue’s vulnerability
BUSINESS SPECTATOR MARCH 26, 2015 12:00AM

Stephen Bartholomeusz

Business Spectator Columnist
Melbourne

Fortescue’s concern is that the slide in the ore price will hurt its ability to finance debt. Source: Supplied

Andrew “Twiggy” Forrest must have been discombobulated by the failure of Fortescue’s two recent attempts at raising debt to restructure its borrowings. Why else would he be calling for the formation of a cartel among seaborne iron ore producers?

Forrest is reported to have told a business dinner in Shanghai that the world’s major iron ore producers should publicly announce a cap on their production to halt the decline in iron pre prices.

If Rio Tinto, BHP Billiton, Brazil’s Vale and Fortescue itself capped their output, prices would go “straight back up to $US70, $US80, $US90 a tonne,” he said.

Fortescue, he said, would be happy to cap its production at 180 million tonnes a year.

That tends to underscore the absurdity of what he is proposing, as well as revealing a touch of hypocrisy.

Fortescue’s rated capacity is 155 million tonnes a year, although in the past six months it has been producing at a rate of closer to 165 million tonnes a year. While asking other producers to cap their output, Forrest is indicating he wants to increase Fortescue’s further.

At a recent iron and steel conference in Perth, Rio’s Andrew Harding made the point that Fortescue accounts for 106 million tonnes, or 43 per cent, of the increased production from the Pilbara since 2011. In other words, Fortescue is as responsible, indeed more responsible, for the Pilbara’s contribution to the oversupply in iron ore that has undermined the price.

Neither Rio nor BHP is going to join an anti-competitive cartel. As the low-cost producers, it isn’t in their long-term interests to provide life-support for higher-cost competitors. In the long run the market will work to create a better balance between supply and demand — their increasing low-cost high-quality supply will eventually drive out higher-cost and/or lower-quality production.

All Forrest has done with his call for a cartel is to highlight to his main competitors and the market his concerns about Fortescue’s vulnerability and increase the pressure on Fortescue itself to respond to the lower prices.

Fortescue, despite admirable progress in reducing its costs, remains a higher-cost producer relative to Rio and BHP. If Forrest wants a supply-side strategy for putting a rising floor under the iron ore price, the obvious option would be for Fortescue to cut its own higher-cost volumes. Earlier this year, Goldman Sachs analysts pointed out that Fortescue could reduce its break-even cost by about $US7 a tonne if it closed its highest-cost and lowest-quality Cloudbreak mine within its Chichester Hub, taking about 40 million tonnes a year out of production.

Fortescue could even shut down the entire Chichester Hub, taking about 100mtpa out and reducing its costs even further. Both Rio and BHP are continuing to increase their own volumes, with Rio on track to lift its volumes from 288 million tonnes last year to 320 million tonnes this year and 350 million tonnes by 2017. BHP, which produced about 242 million tonnes in 2014, expects to produce 245 million tonnes this financial year and, without major capital expenditures, plans a further increase to 290 million tonnes.

There is, according to Rio, something like 300 million tonnes of new supply either under construction or in the process of ramping up, with an extra 100 million tonnes to enter the market this year.

Offsetting that, about 125 million tonnes (most of it from China) was withdrawn from the market last year; another 85 million is likely to be taken out this year and at least that amount of marginal production is also at risk at current prices of less than $US60 a tonne. Some of that marginal production lies within Fortescue’s production complex, given both its costs and the discount it gets because of the lower quality of its ore relative to Rio and BHP.

If the iron ore price were to continue to slide, Fortescue would be in trouble long before Rio and BHP, both of which generate still-fabulous margins and returns on capital even at current prices, would come under any pressure to reign in their volume growth.

Because of its ambitious growth, and its higher costs and its financial leverage, Fortescue has turned itself into probably the key swing producer among the seaborne iron ore suppliers.

Forrest may be feeling the pressure from the failure of the group’s attempt to raise $US2.5 billion ($3.17bn) of debt earlier this month. The original attempt to raise conventional debt in the US market failed and the price demanded from the high-yield bond market proved too steep, forcing Fortescue to abort the raising.

The attempt to raise the debt was designed to give Fortescue the liquidity to repay $US1bn of debt maturing in 2017 and $US400m in 2018 early, giving it breathing space and, it hoped, reducing the interests cost of its $US9bn of borrowings in the process. The failure of the attempt instead ratcheted up the scrutiny of the group and its leverage, despite the absence of any financial maintenance covenants in its borrowings.

Fortescue does have options. Apart from potential mine closures it could, as chief executive Nev Power said this week, introduce a strategic partner — probably a customer like a Chinese steel mill — into one or more of its mines. China’s steel industry has been supportive of Fortescue as a third force to counter the dominance of Rio and BHP.

Fortescue could also revisit the option, first canvassed in 2012, of offering equity in its port and rail infrastructure. While that would increase its operating costs and could reduce its operating efficiency, it would enable it to pay down debt.

The inevitable concern is that a continued slide in the iron ore price, as the supply continues to swell in the face of weaker growth, will choke its cashflows and its capacity to finance and repay its debt. Apart from the 2017 and 2018 maturities, Fortescue has $US4.9bn of debt repayable in 2019.

Power has shown a willingness to act decisively and urgently in the past, as well as the capacity to surprise the market with the progress made on production costs.

With Fortescue’s “all-in” or “break-even” costs estimated by analysts at about $US53 a tonne, a spot iron ore price of $US55.60 a tonne (up from $US54.20 a tonne earlier this week) and the 10 per cent-plus discount Fortescue gets for its ore, there isn’t any margin for error or inertia.

Rio’s Harding has said his group believes it will be balance sheet strength rather than the position on the industry cost curve that will determine the timing of exits from the market.

Fortescue has improved its position on the cost curve but has an overly leveraged balance sheet for current industry conditions.

If Rio and BHP — and Vale, Anglo, Gina Rinehart and others — reject the concept of a cartel, which is inevitable, Fortescue’s fate and its capacity to influence the supply-demand balance and iron ore price will remain in its own hands. As it should.

John Durie is on leave.

[greengiraffe]

Andrew Forrest, the iron ore outsider, now wants in
THE AUSTRALIAN MARCH 26, 2015 12:00AM

Barry FitzGerald

Resources Editor
Melbourne

Twiggy's extraordinary cap proposal
Twiggy's extraordinary cap proposal

ACCC probes potential Twiggy cartel call
ACCC probes potential Twiggy cartel call

Twiggy's extraordinary cap proposalACCC probes potential Twiggy cartel call
Andrew Forrest has made his name — and his fortune — by being a thorn in the side of the big miners, BHP Billiton and Rio Tinto.

His Fortescue Metals Group has come from nowhere in 2003 to establish itself as the nation’s third-biggest producer and, along the way, “Twiggy” has been full of commentary on how Rio and BHP have done their best to keep everyone else at bay.

To effectively call for a truce, as he did in Shanghai this week with his suggestion of an iron ore cartel, suggests he has got to be seriously worried about the future of his one-third-owned Fortescue. The outsider now wants to be the ultim­ate insider.

There is no doubt that pressure on Fortescue has become intense. Should iron ore continue to slide — as many suspect it will once Gina Rinehart’s $10 billion Roy Hill showpiece comes on stream later this year and as Rio and BHP march to even higher production levels — Fortescue’s position looks increasingly difficult.

Start of sidebar. Skip to end of sidebar.

MOREForrest’s cartel call misfire
MOREForrest in cartel trouble
End of sidebar. Return to start of sidebar.

Cost reductions have been made, but Fortescue is now seen as the marginal producer in the grossly over-supplied market for iron ore. Its low-quality iron ore does not help, nor does its $9bn debt pile.

According to invetment bank UBS, Rio and BHP, the Pilbara ­pioneers, can watch the iron ore price fall to about $US35 a tonne (it is currently $US55) before their operations start losing money on each shipment.

Fortescue was late to the ­Pilbara party, so its ore is inferior and needs extra processing before it can be shipped. That was OK when iron ore was comfortably over $US100 a tonne. But, says UBS, Fortescue starts to go backwards at a price of about $US57.

The plunge in iron ore prices in response to massive supply ­increases by the likes of Rio, BHP — and Fortescue itself — has put all second and third-tier miners under pressure. It has wiped more than $5 billion from Forrest’s personal stake in Fortescue alone, taking him down to his last $2bn. So he is understandably tetchy on the subject of what would be good for the iron ore price.

It is against that backdrop that Forrest made his extraordinary call for the formation of a cartel, which in this part of the world means he is now prepared to jump into bed with the old foes of Rio and BHP, the very companies he is effectively ­accusing of having smashed iron ore prices with their pursuit of growth.

It is an unbelievable change of tack from Forrest that was dressed up as a direction needed for the national good, not what was good for Fortescue. It was cynical and nonsensical in that it can’t and won’t happen.

Forrest has not got to (still) be one of Australia’s richest men by being a complete fool. But he has over-stepped the mark by calling on Rio and BHP to do something they cannot legally do.

Forrest and Fortescue, which exports all it produces, reckon no laws have been broken here on the basis that there is a carve-out from the competition law that ­allows the formation of cartels that exclusively relate to exports, as long the Australian Competition and Consumer Commission is advised of any such grand scheme.

So the ACCC’s Rod Sims can investigate away as much as he likes, according to Forrest’s view of things. And it has got to be said, Sims might be better off spending more time on the ­retailers of everything from milk to petrol.

But that does not get away from the fact that Forrest calling on Rio and BHP to join a cartel is mischievous in the extreme. Their more global footprint means they have more than the ACCC to worry about. Try the cartel-busting regulators in the US, the European Union, and China for that matter.

Forrest knows that. So was it just more of the sort of pot stirring, more tilting at windmills, that Forrest has long enjoyed when it comes to anything to do with his biggest and lower-cost competitors in the Pilbara?

But there is some method to the apparent brain snap. The more likely reason for the Shanghai slag-off is a hope, however remote, by Forrest that the federal government buys the line that a cartel would deliver higher prices, and by ­extension, increased taxable profits so that more hospitals, schools, universities, and roads, can be built.

Canberra would have only to get on the phone to Brazil — which along with the Pilbara three of Rio, BHP and Fortescue dominates the seaborne markets in iron ore — and concoct a multilateral agreement for supply constraint in which companies would “volunteer’’ to individually cap their production to preserve the health of their respective iron ore industries on national interest grounds.

It has been done before in ­aluminium back in 1994. Foreign minister of the Hawke-Keating era Gareth Evans helped get it across the line with the governments of the US, Russia, Norway, Canada and Australia — all of which were worried about the future of their aluminium industries following the collapse of the Soviet Union.

About 3 million tonnes of ­aluminium production was cut in voluntary but co-ordinated production restraint — the very sort of stuff Forrest would like to see happen in iron ore. But that presupposes that Rio and BHP would be on board.

They would not be and have no need to be, given that unlike Fortescue, their iron ore operations remain highly profitable.

But to Forrest’s way of thinking, at least he has exposed an ­avenue under which political pressure could be brought to bear on Rio and BHP to cap ­production.

[valuebuddies]

Getting excited

_______________________

Rio Tinto's Sam Walsh slams Fortescue boss Andrew Forrest's 'harebrained' iron ore scheme

http://www.smh.com.au/business/mining-an...m7x98.html

Leading competition lawyers have dismissed Fortescue chairman Andrew Forrest's claims he could use an exemption in Australian competition law to suggest the nation's major producers work together to cap their production to improve dire market conditions.

Competition lawyers also say it will be very difficult for the competition watchdog to prosecute Mr Forrest over his offer to put a cap on Fortescue's production if others would do the same, made at a function in Shanghai on Tuesday evening.

Additionally, the Fortescue chairman suggested controlling production would trigger a price recovery.

Rio Tinto boss Sam Walsh on Thursday dismissed Mr Forrest's iron ore cap proposal as "absolute nonsense" and a "harebrained scheme", and said such a cap is absolutely not in Australia's national interest.

[valuebuddies]

Barnett backs Twiggy's iron ore cap call

http://www.9news.com.au/national/2015/03...e-cap-call

Colin Barnett said there had been an over-reaction to Mr Forrest's idea, including by Rio Tinto chief executive Sam Walsh, who labelled it a "harebrained scheme" and "absolute nonsense".

"I don't think Andrew Forrest ever used the word cartel and I think the response has been a little bit exaggerated," the Liberal leader told Fairfax radio on Friday.

"I think the point he's trying to make is if you flood the market, you hurt yourself, you hurt the smaller companies, you certainly hurt your shareholders, and I think the iron ore industry should be supplying to meet the market.

___________________________

This substantiate my assumption that "if Australia government were to protect its natural resources interest, FMG being the pure Aussie miner should be one of the beneficiary"

[greengiraffe]

BLURRED VISION
1672 words
28 Mar 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Resources Andrew Forrest's roundly derided 'thought bubble' calling for a cap on iron ore production shows the options are running out for the mining giant, write Amanda Saunders and James Thomson.

As thought bubbles go, this one went down like a lead balloon.

Fortescue Metals Group chairman Andrew Forrest's bizarre offer to cap iron ore production at Fortescue's mines if BHP Billiton, Rio Tinto and Brazilian giant Vale did the same sparked a round of name-calling and outlandish statements the likes of which the industry hasn't seen for years.

At a dinner in Shanghai on Tuesday, Forrest said he was "absolutely happy to cap my production right now" at 180 million tonnes (the miner's annual production rate is currently about 155 million tonnes), that the other major players - Rio, BHP and Vale - should also cap their production, "and we'll find the iron ore price goes straight back up to $US70, $US80, $US90".

"I'm happy to put that challenge out there - let's cap our production right here and start acting like grown-ups," he said.

The grown-ups hit back - hard.

Rio Tinto boss Sam Walsh called Forrest "hare-brained" and the cartel idea "absolute nonsense".

Australian Competition and Consumer Commission chair Rod Sims threatened to throw the book at the billionaire for daring to suggest the creation of a cartel.

Gina Rinehart, who is set to open her own iron ore mine later this year, dismissed the idea out of hand.

The incident has many wondering what exactly Forrest was thinking. Is he under such pressure that he's desperately turning to outlandish ideas - a cartel for iron ore like OPEC served for oil - to save his business?

Or is the iron ore magnate more cunning; using his speech to provoke a public debate about whether the corporate strategies of Rio Tinto and BHP to flood the market with cheap iron ore to crush competitors and cement their dominance are really in the national interest?

Perhaps what was most surprising about the reaction to Forrest's outburst was that it seemed to resonate with some of the most powerful politicians in the land.

West Australian Premier Colin Barnett has watched in horror as the 60 per cent drop in the iron ore price - to $US55 a tonne - has ripped a $7 billion hole in the state's budget. It didn't take him long to throw his support behind Forrest's philosophy.

"The major iron ore companies are over-producing; they are flooding the market and they're forcing the price down," Barnett said on Wednesday. "They shouldn't act together; that would be illegal, but I think they would be sensible to be supplying the amount of iron ore to meet the current market demand. I think that would stabilise and probably see prices rise."

Even Foreign Minister and WA MP Julie Bishop seemed to think it was a good idea - at least for a few hours.

Initially it was "worth considering", but later she backed away, saying she was "not an expert on iron ore" after Treasurer Joe Hockey canned the idea completely.

Still, it's not hard to see why Bishop didn't immediately reject Forrest's production cap proposal. Like the WA budget, the Commonwealth budget has been hit hard by the drop in the price of iron ore, which accounts for $1 in every $5 of Australian exports.

Both governments have also badly underestimated how quickly and how far the iron ore price would fall.

Barnett may have described the great iron ore production ramp-up as "one of the dumbest corporate plays I've ever seen", but his state government forecasters haven't exactly been clever either, putting the spot price average at $US122.70 per tonne for the 2015 financial year in last year's May budget.

But would a production cap really be in the national interest, or at least in the interest of politicians watching revenue drop in line with the iron ore price?

Sam Walsh and Gina Rinehart were quick to shoot down that idea, too.

Walsh argued that any tonne Rio was to take out of the market would quickly be replaced by ore from an overseas producer.

"It is essential that we foster Australian industry … that is internationally competitive, and is not being propped up by tariffs or artificial means," he said.

"That is not a way to run this great country. We have the wherewithal to be competitive with our mining, and to try to artificially prop it up with some harebrained scheme - that is just physically not going to do it."

Rinehart, speaking on Thursday night at a dinner in Hong Kong, was even more succinct. "If Australia does not supply iron ore then other countries will," she said.

A production cap might be illegal, but it isn't hard to understand why some politicians - not to mention the smaller miners who are facing oblivion - could be attracted to the idea.

At current prices of $US55 a tonne, only the big four - Rio Tinto, BHP Billiton, Vale and Fortescue - are making money.

The likes of Atlas Iron, BC Iron and Grange Resources are all under severe pressure, and the entire industry is waiting for signs one could crack.

But margins are also sickly thin for FMG, and many in the sector believe either it or Vale will emerge as the biggest victims of the price crash.

Little wonder, then, that Forrest is under huge pressure. Fortescue's options are running out.

Fortescue has made impressive work of slashing cash costs to just $US25 a tonne this year, thanks in part to the falling Australian dollar and the oil price collapse. And chief financial officer Stephen Pearce says he hopes the miner can whittle costs down further to $US20 a tonne by next June.

But the company's failure to execute a $US2.5 billion ($3.1 billion) debt refinancing this month, which would have pushed out its major debt repayments by four years to 2021, stunned many in the market.

Fortescue has been a long-time darling of the US debt markets, pulling off spectacular deals that have in the past seen it avoid near corporate death and creating a reputation for Forrest as a deft negotiator and salesman of Fortescue's story.

FMG had turned to bond investors to raise $US2.5 billion after it failed to secure the desired terms from US loan markets, but was then forced to pull that issue too because pricing was too high.

Debt players are wondering how the latest attempt was botched so badly, when days later BHP raised a quick $1 billion of debt at its cheapest ever rate in the Australian bond market, and other major resources players are also thought to be in the midst of easily securing debt deals in the United States.

FMG's next major debt repayment, of $US1 billion, is not due until April 2017. But more daunting is the $US4.9 billion payment due in 2019, and the recent debt raising was key to pushing that deadline back. The race is now on for it to raise affordable secured debt.

Given Fortescue was brought into the world by an entrepreneur using a large amount of debt, the company's capital structure is far from ideal. Every fall in the iron ore price sees FMG start chewing away at its cash, making its balance sheet instantly weaker.

Last month, FMG said its break-even price - at which it is not making or losing cash - is about $US52 a tonne, already a big improvement on the $US60 a tonne of late last year. In contrast, Rio's break-even is about $US37 a tonne, and moves in the exchange rate or oil price could push FMG's break-even higher once again.

So, aside from raising, what are Fortescue and Forrest's options?

FMG chief executive, Nev Power, put two on the table this week, saying a strategic investor could "free up" the company and prevent it getting "bogged down" with debt repayments. An equity investor would likely come from China, given it is Fortescue's main customer.

Power also said the miner could sell a stake in one of its Pilbara mines if the iron ore price rout continued.

Selling stakes in assets would trade off reduced cash flow for some stability and confidence in its balance sheet. FMG is one of the only Pilbara miners that owns all its assets - mine, port and rail.

BHP and Rio partnered with the Japanese decades ago, and later the Chinese, and the two majors have many equity joint ventures at the asset level.

UBS values Fortescue's assets - mainly its mine and rail operations - at $US18 billion. Selling a stake of 20 per cent or more in its mines would help remedy the balance sheet and allow FMG to hang on to its all-important port and rail assets.

Analysts see a selldown of Fortescue's infrastructure vehicle on, for example, a 20-year lease as one of the least desirable options. It would go a long way to helping debt repayments, but lock Fortescue into fixed haulage charges, neutralising most of the sale benefits.

Last time Fortescue was under pressure back in 2012 - when the miner was about to suffocate under its $US12.1 billion debt - the infrastructure business, known as TPI (The Pilbra Infrastructure) was put on the block. A 30 per cent to 40 per cent stake was valued at the time at about $4 billion.

But Forrest saved the day with a stunning refinancing deal in the US Term Loan B institutional loan market, and the sale was abandoned.

The FMG board is no doubt weighing its options, in the full knowledge that the lower the iron ore price, the weaker its bargaining power on any deal.

The drama created by Forrest's thought bubble is just a distraction from the hard decisions Fortescue may soon need to make.


Fairfax Media Management Pty Limited

Document AFNR000020150327eb3s00014

[valuebuddies]

Fortescue Metals Group nears the red

http://www.afr.com/business/mining/forte...330-1map4l

Andrew Forrest might have laid out a vision for the iron ore price to get back to $US90 a tonne last week – his now-famous proposal for a production-capping cartel – but fresh falls in the spot price have taken the price perilously low to the point where Fortescue Metals Group starts losing money.

At the start of the year, the price was tracking at $US68 a tonne as the industry tried to make sense of a horror 2014. The big question was whether the price would have a five in front of it in 2015. But three months later, the industry is preparing itself for a price that starts with a four.

The price is stalking Fortescue down, no matter how hard the miner races to cut costs. It's share price dropped another 3.75 per cent on Monday, to $1.93.

Fortescue six weeks ago said its break-even price was about $US52 a tonne, against a then spot price of $US65 a tonne.

That's a cash margin of about $US13 a tonne, or about $US2 billion ($2.6 billion) a year.

But overnight Friday, the price fell to a six-year low of about $US53 a tonne, putting Fortescue's production either in, or very close to, the red.

Deutsche Bank mining analyst Paul Young told Fairfax Media on Monday that Fortescue appears to be losing cash at spot prices. UBS analyst Glyn Lawcock estimates Fortescue's break-even price – at which it is neither losing or making money – at $US53 a tonne, which puts the group right on the edge of losses.

But Credit Suisse's Paul McTaggart said the miner could be making a thin margin of $US2 to $US3 a tonne.

The miner still has $US1.6 billion cash on hand (as of six weeks ago), and a debt pile is $US8.8 billion.

DEBT REPAYMENT

Its spectacular failure to twice secure a $US2.5 billion refinancing this month has pitched it in a race against the clock to achieve affordable terms on its secured debt.

Fortescue's next major debt repayment of $US1 billion, is not due until April 2017. But its $US4.9 billion payment due in 2019 is looking increasingly ominous and the recent debt raising was pursued to push that deadline back.

The miner must now try to raise affordable secured debt.

Forrest's offer last week to cap Fortescue's production caps if fellow majors BHP Billiton, Rio Tinto and Brazil's Vale did the same was just distraction from the immense pressure that Fortescue finds itself under.

A miner's break-even – the price at which it is not making or losing cash – is a moveable feast, and changes with fluctuations in the exchange rate or oil price.

For example, every 1¢ movement in the Australian to US dollar exchange rate translates into a $US40 million impact on cash costs across Fortescue's full-year production.

Deutsche's Mr Young said Fortescue's all-in costs were likely about $US45 a tonne, but the miner's ore takes a heavy discount of about 15 per cent to the benchmark price, putting its break-even at $US52 to $US53 a tonne. At current spot prices, Mr Young estimate Fortescue's received price is about $US42 to $S44 a tonne.

"So it appears they are cash flow negative at spot," Mr Young said.

Mr McTaggart took a slightly different view, saying Fortescue could still be making a small cash margin of $US2 to $US3 a tonne after tax at the current spot price.

He said cash costs were heading lower to $US25 a tonne but freight, royalties, sustaining capex and interest added about $US10 a tonne on top of that. When converted to dry metric tonnes, and after applying Fortescue's discount to the benchmark price as well as adding tax, it left Fortescue with a handful of dollars of profit on each tonne of ore.

COST CUTS

Fortescue's chief financial officer Stephen Pearce said last month he was confident the miner could pare its cash costs to $US25 a tonne by this June and to $US20 a tonne, or below, within 18 months.

He was speaking after the miner posted an 81 per cent plunge in interim net profit on the previous year to $US331 million.

Mr Pearce said the miner was racing just to stay abreast of the falling price.

"The constant challenge for us is to always be ahead [of the price] – to the extent that we can," he said.

Fortescue's annual production has more than tripled since 2012, and the miner is on track to produce a record 155 million to 160 million tonnes this year, helping it to spread costs across a wider production base. But greater volumes may not be enough.

The cap Mr Forrest offered to put on his production was 180 million tonnes.

____________________

Decline in price + failed debts refinancing = cheaper FMG = take over target? We shall see when things unfold...