Stocks Drop Revealed Peak of `LBO Boom,' Faber Says (Update2)
By Eric Martin and Pimm Fox
July 27 (Bloomberg) -- The evaporation of funds for financing takeovers in the past week signals leveraged buyouts have peaked and U.S. stocks were overvalued, Marc Faber said.
``The LBO was a function of loose monetary policies and excessive credit growth, an environment where borrowing was very easy,'' said Faber, managing director of Marc Faber Ltd. and publisher of The Gloom, Boom & Doom Report. ``The LBO bubble has dispersed. The peak of the LBO boom has been reached. It was long overdue that the market would go down.''
The $1.51 trillion of U.S. mergers and acquisitions this year fueled the Standard & Poor's 500 Index's rally. The Dow Jones Industrial Average and S&P 500, which rose to records last week, fell the most since February yesterday on concern higher borrowing costs will slow mergers and spur defaults.
Funds for leveraged buyouts are drying up, Richard Bernstein, Merrill Lynch & Co.'s chief investment strategist, wrote in a report yesterday.
Narrow credit spreads made it too easy to finance takeovers using debt, said Leon Cooperman, Chief Executive Officer of Omega Advisors Inc., a $6 billion hedge fund.
``It wasn't that stocks were overvalued -- it's that bonds were overvalued and credit spreads were too tight, encouraging this enormous substitution of debt for equity,'' he said in a phone interview.
`Wall Street Event'
``From everything we can tell right now, we think it's a Wall Street event,'' Cooperman said. ``We think Wall Street got too greedy, and they're getting themselves adjusted here. That's our expectation. The risk to our view is the problems on Wall Street spread into Main Street.''
LBOs, where buyers typically use debt backed by a target's assets to finance purchases, were the engine behind the S&P 500's largest second-quarter gain since 2003. The index rose 5.8 percent as M&A increased 77 percent from a year earlier to about $782.6 billion, according to data compiled by Bloomberg.
Investors are showing less willingness to finance deals. Two days ago, Daimler Chrysler AG's Chrysler unit and Alliance Boots Plc, the U.K.'s biggest pharmacy chain, failed to find investors for $20 billion of loans.
Faber told investors to bail out of U.S. stocks a week before the 1987 Black Monday crash, according to his Web site. A Zurich native who learned English while picking potatoes in the U.K. countryside at the age of 13, Faber started his own firm in 1990.
He correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent, the smallest annual rise since 1987. He also told investors to buy gold in 2001, before it more than doubled.
On March 29, Faber said the emergence of home loan concerns meant the stock market was unlikely to benefit from the conditions that supported its rally since June 2006. The S&P 500 climbed 10 percent between then and July 19, when it reached a record. The advance from March 29 has since narrowed to 2.6 percent.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net ; Pimm Fox in New York at pfox11@bloomberg.net .
Last Updated: July 27, 2007 21:36 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeKT5Afm6k0o&refer=home
http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/v6QpJy4ZYnts.asf
Tuesday, July 31, 2007
Friday, July 27, 2007
Jim Rogers cautiously bullish on China stocks
Jim Rogers cautiously bullish on China stocks
Thu Jul 26, 2007 5:22AM EDT
By Charlie Zhu
SHANGHAI (Reuters) - China's stock market is dangerously high but environmental protection, water, railways and renewable energy stocks are still worth holding, fund manager and investment author Jim Rogers said on Thursday.
Rogers, in a presentation at a conference, also reiterated his view to dump dollars and bonds and stay bullish on commodities, such as oil and aluminum. Gold was still going strong, but copper prices look stretched, he added.
A prominent China bull, Rogers said investors should be cautious after China's benchmark Shanghai composite index quadrupled over the past two years.
It closed at a record high on Thursday.
"The stock market is going through the roof over the past three years. That's always a dangerous sign," said Rogers, who co-founded the Quantum hedge fund with billionaire investor George Soros in the 1970s.
"And if you are new to the stock market, you probably think this is the way that things always work. This is not the way the market always works," he said.
"I'm not suggesting you sell your stocks. But I want you to know this is not usual," he said, adding that some Chinese shares were going to collapse as they were "crazily priced".
But Rogers sees opportunities in Chinese companies involved in sectors such as environmental protection, water, green energy, railways and education, where the government and public were expected to spend a lot of money.
"I'm not selling my Chinese shares. As I said, I bought more of them last week. If the market triples again in the next year I would probably have to sell my Chinese shares," said Rogers, who bought his first Chinese stocks in 1999.
Rogers, 64, urged investors to get exposure to the Chinese currency, the renminbi, and dump the U.S. dollar, which he calls "a terribly flawed currency" as the United States is deep in debt.
"Renminbi is going to be one of the strongest currencies for many years to come," he said.
Bonds around the world are headed down and that trend would also continue for many years to come, he said.
"If you invest in bonds anywhere in the world, sell it," he said. "If you invest in shares, think of Asia," he added.
Commodities such as oil and metals are expected to stay strong for many years, driven by supply and demand, Rogers said.
He said he favored aluminum over copper right now because copper prices had shot up, and said property in China is getting expensive.
"I will not buy in Shanghai or Beijing at the moment."
http://www.reuters.com/article/businessNews/idUSSHA29341720070726?pageNumber=2&sp=true
Thu Jul 26, 2007 5:22AM EDT
By Charlie Zhu
SHANGHAI (Reuters) - China's stock market is dangerously high but environmental protection, water, railways and renewable energy stocks are still worth holding, fund manager and investment author Jim Rogers said on Thursday.
Rogers, in a presentation at a conference, also reiterated his view to dump dollars and bonds and stay bullish on commodities, such as oil and aluminum. Gold was still going strong, but copper prices look stretched, he added.
A prominent China bull, Rogers said investors should be cautious after China's benchmark Shanghai composite index quadrupled over the past two years.
It closed at a record high on Thursday.
"The stock market is going through the roof over the past three years. That's always a dangerous sign," said Rogers, who co-founded the Quantum hedge fund with billionaire investor George Soros in the 1970s.
"And if you are new to the stock market, you probably think this is the way that things always work. This is not the way the market always works," he said.
"I'm not suggesting you sell your stocks. But I want you to know this is not usual," he said, adding that some Chinese shares were going to collapse as they were "crazily priced".
But Rogers sees opportunities in Chinese companies involved in sectors such as environmental protection, water, green energy, railways and education, where the government and public were expected to spend a lot of money.
"I'm not selling my Chinese shares. As I said, I bought more of them last week. If the market triples again in the next year I would probably have to sell my Chinese shares," said Rogers, who bought his first Chinese stocks in 1999.
Rogers, 64, urged investors to get exposure to the Chinese currency, the renminbi
"Renminbi is going to be one of the strongest currencies for many years to come," he said.
Bonds around the world are headed down and that trend would also continue for many years to come, he said.
"If you invest in bonds anywhere in the world, sell it," he said. "If you invest in shares, think of Asia," he added.
Commodities such as oil and metals are expected to stay strong for many years, driven by supply and demand, Rogers said.
He said he favored aluminum over copper right now because copper prices had shot up, and said property in China is getting expensive.
"I will not buy in Shanghai or Beijing at the moment."
http://www.reuters.com/article/businessNews/idUSSHA29341720070726?pageNumber=2&sp=true
Friday, July 20, 2007
Sub-Prime Shockwave (2007)
Bloomberg show on US subprime mortgage problem in 2007
Marc Faber and Jim Rogers are interviewed (@34 minutes mark)
mms://media2.bloomberg.com/cache/v0OR3iFv14lg.asf
Marc Faber and Jim Rogers are interviewed (@34 minutes mark)
mms://media2.bloomberg.com/cache/v0OR3iFv14lg.asf
Monday, July 16, 2007
Twiggy pitches to Packer, Indians
Twiggy pitches to Packer, Indians
Kevin Andrusiak July 14, 2007
FORTESCUE Metals Group is poised to pull off one of the biggest investment coups in domestic resources history.
James Packer and Indian interests are set to back Andrew "Twiggy" Forrest's dream of breaking the Pilbara iron ore duopoly held by Rio Tinto and BHP Billiton.
Mr Forrest was expected to give Mr Packer, Australia's richest man, a private briefing on Fortescue's ambitions in London last night as the company sought to raise $US300 million ($346 million) in new equity to partly fund a dramatic expansion of its $3.7 billion Chichester Ranges project in Western Australia's iron ore heartland.
It comes after Mr Forrest toured London financial institutions spruiking the new equity placement on Thursday and Friday.
Mr Forrest will also promote the placement to billionaire metals traders David and Simon Reuben who are collectively thought to be worth $11 billion. The pair once controlled about 50 per cent of the Russian aluminium industry before selling out in 2000 to concentrate on Britain's property market.
But Mr Forrest's expected meetings with Arcelor Mittal representatives, possibly company president and steel magnate Lakshmi Mittal, would mark a dramatic development for Fortescue, which previously has been dedicated solely to the Chinese market.
Arcelor Mittal, which has headquarters in Luxembourg and is controlled by Mr Mittal, the world's fifth-richest man, trumpets itself as the world's most global steel company but is yet to make a mark on the booming Australia iron ore landscape. It is understood that Mr Mittal is seeking an offtake arrangement with Fortescue, which has targeted a production rate of 45 million tonnes a year, before ramping that up to 100 million tonnes by 2010 and 200 million tonnes a year "as soon as possible".
That would put Fortescue on a similar tier to iron ore heavyweights Rio Tinto and BHP Billiton as it eyes an expansion of known resources to 4 billion tonnes across its 40,000sqkm of tenements.
FMG representatives could not be reached for comment but the company could have easily placed the $US300 million with London firms, according to sources close to the deal. So strong is the interest in London, coming off the back of Rio Tinto's $US37.1 billion bid for Alcan and a mooted 25 per cent rise in iron ore price contracts for next year, that there is a good chance the equity placement will be increased to around $US450 million.
It is expected the shares will be placed at around the $37.00 mark, which will effectively put a floor price under the stock -- of which Mr Forrest currently owns about 38.5 per cent.
A fully placed $300 million offering at $37 would see about 9.3 million new shares issued and have only a marginal dilutionary effect.
"If James Packer doesn't take any stock, I will walk home from London," one insider said.
Mr Forrest, who himself has a paper fortune of $4.05 billion from his Fortescue stake, has developed a close personal friendship. He was placed near the front row in seating at Mr Packer's nuptials to model Erica Baxter in France last month.
Mr Packer has also had a personal tour of Fortescue's operations, which remain on track to deliver their first direct ore shipment in May next year, if contractors can build a 260km railway line to its Port Hedland facilities.
Fortescue's shares remained in a trading halt yesterday at $39.50.
http://www.theaustralian.news.com.au/story/0,24897,22070664-643,00.html
Kevin Andrusiak July 14, 2007
FORTESCUE Metals Group is poised to pull off one of the biggest investment coups in domestic resources history.
James Packer and Indian interests are set to back Andrew "Twiggy" Forrest's dream of breaking the Pilbara iron ore duopoly held by Rio Tinto and BHP Billiton.
Mr Forrest was expected to give Mr Packer, Australia's richest man, a private briefing on Fortescue's ambitions in London last night as the company sought to raise $US300 million ($346 million) in new equity to partly fund a dramatic expansion of its $3.7 billion Chichester Ranges project in Western Australia's iron ore heartland.
It comes after Mr Forrest toured London financial institutions spruiking the new equity placement on Thursday and Friday.
Mr Forrest will also promote the placement to billionaire metals traders David and Simon Reuben who are collectively thought to be worth $11 billion. The pair once controlled about 50 per cent of the Russian aluminium industry before selling out in 2000 to concentrate on Britain's property market.
But Mr Forrest's expected meetings with Arcelor Mittal representatives, possibly company president and steel magnate Lakshmi Mittal, would mark a dramatic development for Fortescue, which previously has been dedicated solely to the Chinese market.
Arcelor Mittal, which has headquarters in Luxembourg and is controlled by Mr Mittal, the world's fifth-richest man, trumpets itself as the world's most global steel company but is yet to make a mark on the booming Australia iron ore landscape. It is understood that Mr Mittal is seeking an offtake arrangement with Fortescue, which has targeted a production rate of 45 million tonnes a year, before ramping that up to 100 million tonnes by 2010 and 200 million tonnes a year "as soon as possible".
That would put Fortescue on a similar tier to iron ore heavyweights Rio Tinto and BHP Billiton as it eyes an expansion of known resources to 4 billion tonnes across its 40,000sqkm of tenements.
FMG representatives could not be reached for comment but the company could have easily placed the $US300 million with London firms, according to sources close to the deal. So strong is the interest in London, coming off the back of Rio Tinto's $US37.1 billion bid for Alcan and a mooted 25 per cent rise in iron ore price contracts for next year, that there is a good chance the equity placement will be increased to around $US450 million.
It is expected the shares will be placed at around the $37.00 mark, which will effectively put a floor price under the stock -- of which Mr Forrest currently owns about 38.5 per cent.
A fully placed $300 million offering at $37 would see about 9.3 million new shares issued and have only a marginal dilutionary effect.
"If James Packer doesn't take any stock, I will walk home from London," one insider said.
Mr Forrest, who himself has a paper fortune of $4.05 billion from his Fortescue stake, has developed a close personal friendship. He was placed near the front row in seating at Mr Packer's nuptials to model Erica Baxter in France last month.
Mr Packer has also had a personal tour of Fortescue's operations, which remain on track to deliver their first direct ore shipment in May next year, if contractors can build a 260km railway line to its Port Hedland facilities.
Fortescue's shares remained in a trading halt yesterday at $39.50.
http://www.theaustralian.news.com.au/story/0,24897,22070664-643,00.html
Wednesday, July 11, 2007
Poseidon returns, has marginal plan
Poseidon returns, has marginal plan
July 3, 2007
It will need a nickel price well above the long-term average to make a go of it.
AdvertisementAdvertisementIT'S official - Poseidon is back.
At a meeting yesterday, investors in Niagara Mining, the would-be resurrector of the infamous Windarra nickel project, approved a resolution to change the company's name to Poseidon Nickel.
Niagara - ahem, Poseidon - also nearly unanimously approved an options package for its new chairman, Andrew "Twiggy" Forrest, which is already more than $200 million in the money.
Forrest hasn't brought much to the table yet except for his name and a marketing deal with his iron ore company, Fortescue Metals, if Poseidon manages to resurrect Windarra. And since Twiggy announced plans to join the company in April, there have been four stock exchange queries, including three in the space of a week.
Poseidon's first move yesterday was to ditch chief executive Chris Daws - a man who, like Twiggy, has had a few run-ins with the Australian Securities and Investments Commission - in favour of former Clough chief executive David Singleton.
He will have the unenviable task of proving Poseidon's South Windarra heap-leach project is economic.
The project may have looked good a few weeks back when nickel was trading at record highs above $US20 a pound. But South Windarra has an estimated operating cost of $US10.30 a pound, which could rank it as the most expensive producer in Western Australia.
Given the recent nickel price pull-back and Goldman Sachs JBWere's prediction the nickel price would average $US10.53 a pound in 2009, the project's chances of getting off the ground aren't looking great.
http://www.smh.com.au/news/xchange/poseidon-returns-has-marginal-plan/2007/07/02/1183351125682.html?page=fullpage#contentSwap1
July 3, 2007
It will need a nickel price well above the long-term average to make a go of it.
AdvertisementAdvertisementIT'S official - Poseidon is back.
At a meeting yesterday, investors in Niagara Mining, the would-be resurrector of the infamous Windarra nickel project, approved a resolution to change the company's name to Poseidon Nickel.
Niagara - ahem, Poseidon - also nearly unanimously approved an options package for its new chairman, Andrew "Twiggy" Forrest, which is already more than $200 million in the money.
Forrest hasn't brought much to the table yet except for his name and a marketing deal with his iron ore company, Fortescue Metals, if Poseidon manages to resurrect Windarra. And since Twiggy announced plans to join the company in April, there have been four stock exchange queries, including three in the space of a week.
Poseidon's first move yesterday was to ditch chief executive Chris Daws - a man who, like Twiggy, has had a few run-ins with the Australian Securities and Investments Commission - in favour of former Clough chief executive David Singleton.
He will have the unenviable task of proving Poseidon's South Windarra heap-leach project is economic.
The project may have looked good a few weeks back when nickel was trading at record highs above $US20 a pound. But South Windarra has an estimated operating cost of $US10.30 a pound, which could rank it as the most expensive producer in Western Australia.
Given the recent nickel price pull-back and Goldman Sachs JBWere's prediction the nickel price would average $US10.53 a pound in 2009, the project's chances of getting off the ground aren't looking great.
http://www.smh.com.au/news/xchange/poseidon-returns-has-marginal-plan/2007/07/02/1183351125682.html?page=fullpage#contentSwap1
Tuesday, July 10, 2007
Marc Faber Bloomberg (Video)Interview “Bubbles everywhere, Fed will cut this year”
Marc Faber Bloomberg (Video)Interview “Bubbles everywhere, Fed will cut this year”
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vVYbMUXzXOBg.asf
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vVYbMUXzXOBg.asf
Saturday, July 7, 2007
Investor Jim Rogers says sell Wall Street banks
Investor Jim Rogers says sell Wall Street banks
Thu Jul 5, 2007 6:43AM EDTBy Jan Dahinten
SINGAPORE (Reuters) - Fund manager and investment author Jim Rogers said he was selling stock in Wall Street banks because of a likely housing market slump and suggested buying sugar as a way into commodities.
Rogers, who co-founded the Qantum hedge fund with billionaire investor George Soros in 1970, is a long-time commodity bull and believes that fast growth in Asia, especially China, makes the region more attractive to investors than the United States or Europe.
"Financial companies, stock brokers, investment banks -- I am short. I am short financial services companies, mainly in America. I am short (U.S. home funding firm) Fannie Mae (FNM.N: Quote, Profile, Research)," he told reporters after a speech to investors, adding that America's financial sector offered "the best" short selling opportunities available.
Investors have been increasingly nervous about U.S. financial stocks as the market for risky, or subprime, mortgages faces a possible crisis due to rising defaults and repossessions.
"The problems with the housing market have a long way to go in the United States. Probably more so than in any other country. But the excesses in the world economy are on Wall Street: investment bankers. Those guys are making vast fortunes, that's not the way the world works."
Rogers traveled around 116 countries in 2000-2002 in a yellow Mercedes coupe. He also traveled through China in the 1990s, looking for investment ideas and collecting material for his popular books, which include titles such as "Hot commodities: How anyone can invest profitably in the world's best market" and "Investment Biker: Around the World with Jim Rogers."
"China is the next great country in the world -- whether we like it or not. And a lot of people in the West do not like it that China is the next great country in the world," he said, citing the country's high savings rate and hard-working people.
DON'T BUY NOW
But Rogers also warned that Chinese shares were overvalued after the Shanghai Composite Index (.SSEC: Quote, Profile, Research) gained more than 35 percent since the start of the year.
"I wouldn't buy Chinese shares now. I'm not selling my Chinese shares," he said, adding that if the stock market fell by 40 or 50 percent "I would increase my position in a big way."
Rogers, 64, said his favorite commodities investments were agricultural products.
"At the moment, if I'm looking for a new investment in commodities I would look at agriculture."
He said lead was his least favorite commodity after the metal hit a record. In early London Metal Exchange business on Thursday, three-month lead (MPB3: Quote, Profile, Research) traded at more than $2,900 per ton supported by strong fundamentals and speculative buying.
Lead has gained more than 72 percent since the start of the year as investors, attracted by an outlook of firm demand and tight supply, have bought heavily.
"It doesn't mean I'm selling lead, it just means that its probably my least favorite. Sugar is 85 percent below its all-time high, lead hit a new all-time high...and is up 600 or 700 percent in the last few years."
Rogers reiterated an idea first aired two years ago to sell his New York apartment and move to a Chinese-speaking city with his family to enable his bilingual daughter to attend a Chinese school -- although he appeared to have cooled to a plan to move to China's mainland.
As Hong Kong, Shanghai and Beijing were ruled out because of air pollution, he is considering Singapore as well as the Chinese cities of Dalian, Huangzhou and Qingdao.
"At the moment, Singapore is one of the most interesting," he said, adding that one drawback was that the city-state "is not enough Chinese."
http://www.reuters.com/article/ousiv/idUSSIN29515920070705
Thu Jul 5, 2007 6:43AM EDTBy Jan Dahinten
SINGAPORE (Reuters) - Fund manager and investment author Jim Rogers said he was selling stock in Wall Street banks because of a likely housing market slump and suggested buying sugar as a way into commodities.
Rogers, who co-founded the Qantum hedge fund with billionaire investor George Soros in 1970, is a long-time commodity bull and believes that fast growth in Asia, especially China, makes the region more attractive to investors than the United States or Europe.
"Financial companies, stock brokers, investment banks -- I am short. I am short financial services companies, mainly in America. I am short (U.S. home funding firm) Fannie Mae (FNM.N: Quote, Profile, Research)," he told reporters after a speech to investors, adding that America's financial sector offered "the best" short selling opportunities available.
Investors have been increasingly nervous about U.S. financial stocks as the market for risky, or subprime, mortgages faces a possible crisis due to rising defaults and repossessions.
"The problems with the housing market have a long way to go in the United States. Probably more so than in any other country. But the excesses in the world economy are on Wall Street: investment bankers. Those guys are making vast fortunes, that's not the way the world works."
Rogers traveled around 116 countries in 2000-2002 in a yellow Mercedes coupe. He also traveled through China in the 1990s, looking for investment ideas and collecting material for his popular books, which include titles such as "Hot commodities: How anyone can invest profitably in the world's best market" and "Investment Biker: Around the World with Jim Rogers."
"China is the next great country in the world -- whether we like it or not. And a lot of people in the West do not like it that China is the next great country in the world," he said, citing the country's high savings rate and hard-working people.
DON'T BUY NOW
But Rogers also warned that Chinese shares were overvalued after the Shanghai Composite Index (.SSEC: Quote, Profile, Research) gained more than 35 percent since the start of the year.
"I wouldn't buy Chinese shares now. I'm not selling my Chinese shares," he said, adding that if the stock market fell by 40 or 50 percent "I would increase my position in a big way."
Rogers, 64, said his favorite commodities investments were agricultural products.
"At the moment, if I'm looking for a new investment in commodities I would look at agriculture."
He said lead was his least favorite commodity after the metal hit a record. In early London Metal Exchange business on Thursday, three-month lead (MPB3: Quote, Profile, Research) traded at more than $2,900 per ton supported by strong fundamentals and speculative buying.
Lead has gained more than 72 percent since the start of the year as investors, attracted by an outlook of firm demand and tight supply, have bought heavily.
"It doesn't mean I'm selling lead, it just means that its probably my least favorite. Sugar is 85 percent below its all-time high, lead hit a new all-time high...and is up 600 or 700 percent in the last few years."
Rogers reiterated an idea first aired two years ago to sell his New York apartment and move to a Chinese-speaking city with his family to enable his bilingual daughter to attend a Chinese school -- although he appeared to have cooled to a plan to move to China's mainland.
As Hong Kong, Shanghai and Beijing were ruled out because of air pollution, he is considering Singapore as well as the Chinese cities of Dalian, Huangzhou and Qingdao.
"At the moment, Singapore is one of the most interesting," he said, adding that one drawback was that the city-state "is not enough Chinese."
http://www.reuters.com/article/ousiv/idUSSIN29515920070705
Fortescue founder shrugs off concerns
Fortescue founder shrugs off concerns
Australian Broadcasting Corporation
Broadcast: 04/07/2007
Reporter: Emma Alberici
The share price of Fortescue Metals continues to rocket, even though the company has not yet exported its main product, iron ore, and a cost blow-out is delaying the project. Company founder Andrew Forrest discusses Fortescue's prospects with Lateline Business host Emma Alberici.
Transcript
EMMA ALBERICI: The miners were really the star performers today. Two years almost to the day, Fortescue Metals was trading on the stock market at $2.87. The share price closed today at about 13 times that, at $36.25 - this despite the fact that the company is still yet to produce or ship one tonne of iron ore. The company has spent the past three years building a mine in the Pilbara in Western Australia. Just last week, it was revealed that a cost blow-out would delay the project and then there's Fortescue founder Andrew Forrest, whose failed Anaconda Nickel project has many analysts nervous about the viability of his ambitions in the Pilbara. His credibility will be tested further at the end of this month ,when court proceedings start in the case the corporate regulator is running against him on claims he misled the market about the state of his contracts to sell iron ore to the Chinese. I caught up with Andrew Forrest earlier today.
Andrew Forrest, welcome to Lateline Business. What can you tell us about the latest delays to your project?
ANDREW FORREST: Well, you're looking at about a four-year implementation program of this project, which in the Pilbara has normally taken between 12 and 15 years. So while the pressure is intense here in Fortescue to get the project up as quickly as possible, from where the most effect is felt, which is our customers, they're just saying, 'We're so grateful for your effort thus far, bring it on as quick as you can but don't break your back in the process'.
EMMA ALBERICI: So what is the production schedule now?
ANDREW FORREST: We hope to be ramping up to 3 to 4 million tonnes a month within 12 months of commencing production. We'll be commencing production in the first half of next year and that will be then steadily moved up to around 10 million tonnes per month to an ultimate goal of 200 million tonnes out of the Port Hedland port area and out of the massive iron ore hinterland of the Pilbara.
EMMA ALBERICI: How confident are you that you won't run into further delays?
ANDREW FORREST: You can never say never when you're doing large scale construction. I've had a lot of experience in this industry and there are disappointments and pit falls and if there weren't, then leadership would really be out of a job. It's our job to manage our way through this and still achieve this massive ground-breaking Australian project in absolute record time. And if we can bring it on any time next year, then we'd have achieved that. But we are confident, very confident we'll bring it on in the first half of next year.
EMMA ALBERICI: How many contracts have you actually signed with the Chinese?
ANDREW FORREST: We have long-term contracts with 34 different companies.
EMMA ALBERICI: Are those contracts predicated on a particular delivery date? And what other conditions are built into them?
ANDREW FORREST: Each contract talks about 45 million tonnes in percentage terms. So if for any reason we were late, then there'd be no chance of harm coming to the company. We've been very careful with that and of course, that is one of the reasons why this project was so bankable, that the bankers could see that the downside of delays was very well-managed and to bring this project on in the first half of next year from a perspective of the customer, there's been no effective delays. They're very pleased with that result.
EMMA ALBERICI: When will Fortescue actually turn a profit?
ANDREW FORREST: I think within months of our first ship sailing, you'll get Fortescue in profit. The very difficult part, Emma, about the iron ore industry on a world-scale basis is getting into it. The barriers to entry are immense. You need billions of dollars, you need billions of tonnes, you need friendly sovereign government regimes, you need huge work forces. Now, we've been able to put all that together. Once you're in, you begin to see why the barriers to entry are so large and that is it's a very profitable industry. It's the very industry which has created the balance sheets and created the fortunes of not one but three of the world's largest mining companies: BHP, Rio Tinto and CVRD.
EMMA ALBERICI: When we talk about delays and cost overruns, those with long memories in the markets fear it could be history repeating itself. Anaconda Nickel, now known as Minara Resources, suffered cost blow-outs and delays under your leadership, with creditors in the end left with little more than 20 cents in the dollar.
ANDREW FORREST: Anaconda is really much-maligned. Minara Resources enjoys one of the most efficient, high-quality nickel-producing facilities in the world right now. It is a tremendous operation. It is certainly the pride of anyone who ever goes out and sees it. When Glencore, which is an international, hard-nosed juggernaut, took over our company, we left it with a couple hundred million dollars cash at bank and we left it with a strongly growing production profile. But that didn't suit Glencore. They didn't want the good news out there. It was very much in their interest to talk the company down, to malign its interest publicly and it was a full year before they were able to achieve a cascading down share price and eventually buy the debt back and try and buy the company for a fraction of what it was worth a year earlier when my team ran the company. But the experience there for me was irreplaceable. That was very hard yards and I'm grateful for that experience. I certainly couldn't have got it from Harvard or an institution. You have to go through those fires to really be able to plan for a major project like Fortescue and you will look around Fortescue and you will see a highly cooperative environment with all it's contractors, very few lump-sum contracts and certainly no overarching lump-sum contracts, and that really epitomises Fortescue, where we've been able to build strong bridge relationships with all our stakeholders and particularly our contractors. We're all incentivated to get this project ramped up to 45 million tonnes as quickly as possible.
EMMA ALBERICI: Why did you seek all your funding for Fortescue from overseas?
ANDREW FORREST: When you put on a multi-billion-dollar capital-raising like Fortescue took and the institutions and the banks are getting their information on Fortescue, their background information from the very competitors trying to keep Fortescue out, BHP and Rio Tinto, then you can understand what they'd develop a reasonably pessimistic opinion of BHP and Rio Tinto's most dangerous competitor in their most profitable field, which is Pilbara iron ore. Now unfortunately, that's what the banks and that's what the institutions went on, and they've of course paid dearly for that because the share price has gone up several times. And unfortunately those institutions are now coming onto the register, and we'd have loved to have had them on earlier but there's still enormous growth for them to participate in now.
EMMA ALBERICI: In two weeks, you'll front court in the corporate regulator's case against you. ASIC says you misled the market by claiming to have contracts signed which they say actually weren't. You could be banned from being a director of Fortescue or any other company. How are you feeling about that?
ANDREW FORREST: We have looked at that philosophically. It has been another rock in the backpack of getting this project up. I think it has cost the company and its major stakeholders in a very real sense. We dealt with highly sophisticated international business people who flagged they were going to pull out of agreements with us unless we sold them the company. We weren't interested in selling them the company and of course, that judgement has been vindicated several times over, over the last two or three years, and they went ahead and threatened to pull out of those agreements and it cost us a great deal of time. But the ASIC attention, as a result of that, will lead to our day in court and I can fairly say to you we are all, not just me, but we're all looking forward to our day in court.
EMMA ALBERICI: Andrew Forrest, thanks for joining us this evening.
ANDREW FORREST: Thanks very much, Emma.
http://www.abc.net.au/lateline/business/items/200707/s1969510.htm
http://www.abc.net.au/reslib/200707/r157307_570080.asx
Australian Broadcasting Corporation
Broadcast: 04/07/2007
Reporter: Emma Alberici
The share price of Fortescue Metals continues to rocket, even though the company has not yet exported its main product, iron ore, and a cost blow-out is delaying the project. Company founder Andrew Forrest discusses Fortescue's prospects with Lateline Business host Emma Alberici.
Transcript
EMMA ALBERICI: The miners were really the star performers today. Two years almost to the day, Fortescue Metals was trading on the stock market at $2.87. The share price closed today at about 13 times that, at $36.25 - this despite the fact that the company is still yet to produce or ship one tonne of iron ore. The company has spent the past three years building a mine in the Pilbara in Western Australia. Just last week, it was revealed that a cost blow-out would delay the project and then there's Fortescue founder Andrew Forrest, whose failed Anaconda Nickel project has many analysts nervous about the viability of his ambitions in the Pilbara. His credibility will be tested further at the end of this month ,when court proceedings start in the case the corporate regulator is running against him on claims he misled the market about the state of his contracts to sell iron ore to the Chinese. I caught up with Andrew Forrest earlier today.
Andrew Forrest, welcome to Lateline Business. What can you tell us about the latest delays to your project?
ANDREW FORREST: Well, you're looking at about a four-year implementation program of this project, which in the Pilbara has normally taken between 12 and 15 years. So while the pressure is intense here in Fortescue to get the project up as quickly as possible, from where the most effect is felt, which is our customers, they're just saying, 'We're so grateful for your effort thus far, bring it on as quick as you can but don't break your back in the process'.
EMMA ALBERICI: So what is the production schedule now?
ANDREW FORREST: We hope to be ramping up to 3 to 4 million tonnes a month within 12 months of commencing production. We'll be commencing production in the first half of next year and that will be then steadily moved up to around 10 million tonnes per month to an ultimate goal of 200 million tonnes out of the Port Hedland port area and out of the massive iron ore hinterland of the Pilbara.
EMMA ALBERICI: How confident are you that you won't run into further delays?
ANDREW FORREST: You can never say never when you're doing large scale construction. I've had a lot of experience in this industry and there are disappointments and pit falls and if there weren't, then leadership would really be out of a job. It's our job to manage our way through this and still achieve this massive ground-breaking Australian project in absolute record time. And if we can bring it on any time next year, then we'd have achieved that. But we are confident, very confident we'll bring it on in the first half of next year.
EMMA ALBERICI: How many contracts have you actually signed with the Chinese?
ANDREW FORREST: We have long-term contracts with 34 different companies.
EMMA ALBERICI: Are those contracts predicated on a particular delivery date? And what other conditions are built into them?
ANDREW FORREST: Each contract talks about 45 million tonnes in percentage terms. So if for any reason we were late, then there'd be no chance of harm coming to the company. We've been very careful with that and of course, that is one of the reasons why this project was so bankable, that the bankers could see that the downside of delays was very well-managed and to bring this project on in the first half of next year from a perspective of the customer, there's been no effective delays. They're very pleased with that result.
EMMA ALBERICI: When will Fortescue actually turn a profit?
ANDREW FORREST: I think within months of our first ship sailing, you'll get Fortescue in profit. The very difficult part, Emma, about the iron ore industry on a world-scale basis is getting into it. The barriers to entry are immense. You need billions of dollars, you need billions of tonnes, you need friendly sovereign government regimes, you need huge work forces. Now, we've been able to put all that together. Once you're in, you begin to see why the barriers to entry are so large and that is it's a very profitable industry. It's the very industry which has created the balance sheets and created the fortunes of not one but three of the world's largest mining companies: BHP, Rio Tinto and CVRD.
EMMA ALBERICI: When we talk about delays and cost overruns, those with long memories in the markets fear it could be history repeating itself. Anaconda Nickel, now known as Minara Resources, suffered cost blow-outs and delays under your leadership, with creditors in the end left with little more than 20 cents in the dollar.
ANDREW FORREST: Anaconda is really much-maligned. Minara Resources enjoys one of the most efficient, high-quality nickel-producing facilities in the world right now. It is a tremendous operation. It is certainly the pride of anyone who ever goes out and sees it. When Glencore, which is an international, hard-nosed juggernaut, took over our company, we left it with a couple hundred million dollars cash at bank and we left it with a strongly growing production profile. But that didn't suit Glencore. They didn't want the good news out there. It was very much in their interest to talk the company down, to malign its interest publicly and it was a full year before they were able to achieve a cascading down share price and eventually buy the debt back and try and buy the company for a fraction of what it was worth a year earlier when my team ran the company. But the experience there for me was irreplaceable. That was very hard yards and I'm grateful for that experience. I certainly couldn't have got it from Harvard or an institution. You have to go through those fires to really be able to plan for a major project like Fortescue and you will look around Fortescue and you will see a highly cooperative environment with all it's contractors, very few lump-sum contracts and certainly no overarching lump-sum contracts, and that really epitomises Fortescue, where we've been able to build strong bridge relationships with all our stakeholders and particularly our contractors. We're all incentivated to get this project ramped up to 45 million tonnes as quickly as possible.
EMMA ALBERICI: Why did you seek all your funding for Fortescue from overseas?
ANDREW FORREST: When you put on a multi-billion-dollar capital-raising like Fortescue took and the institutions and the banks are getting their information on Fortescue, their background information from the very competitors trying to keep Fortescue out, BHP and Rio Tinto, then you can understand what they'd develop a reasonably pessimistic opinion of BHP and Rio Tinto's most dangerous competitor in their most profitable field, which is Pilbara iron ore. Now unfortunately, that's what the banks and that's what the institutions went on, and they've of course paid dearly for that because the share price has gone up several times. And unfortunately those institutions are now coming onto the register, and we'd have loved to have had them on earlier but there's still enormous growth for them to participate in now.
EMMA ALBERICI: In two weeks, you'll front court in the corporate regulator's case against you. ASIC says you misled the market by claiming to have contracts signed which they say actually weren't. You could be banned from being a director of Fortescue or any other company. How are you feeling about that?
ANDREW FORREST: We have looked at that philosophically. It has been another rock in the backpack of getting this project up. I think it has cost the company and its major stakeholders in a very real sense. We dealt with highly sophisticated international business people who flagged they were going to pull out of agreements with us unless we sold them the company. We weren't interested in selling them the company and of course, that judgement has been vindicated several times over, over the last two or three years, and they went ahead and threatened to pull out of those agreements and it cost us a great deal of time. But the ASIC attention, as a result of that, will lead to our day in court and I can fairly say to you we are all, not just me, but we're all looking forward to our day in court.
EMMA ALBERICI: Andrew Forrest, thanks for joining us this evening.
ANDREW FORREST: Thanks very much, Emma.
http://www.abc.net.au/lateline/business/items/200707/s1969510.htm
http://www.abc.net.au/reslib/200707/r157307_570080.asx
Tuesday, July 3, 2007
Rogers Says He's Sold Emerging Markets, Except China
Rogers Says He's Sold Emerging Markets, Except China (Update3)
By Chen Shiyin and Paul Gordon
July 2 (Bloomberg) -- Jim Rogers, who predicted the start of the global commodities rally in 1999, said he's sold out of all emerging markets with the exception of China because they're ``over-exploited.''
``I'm hoping when the next big correction comes I'm smart enough to buy some of them back,'' Rogers, chairman of New York- based Beeland Interests Inc., said in an interview in Singapore today. ``They're all over-exploited, so I've sold out.''
The Morgan Stanley Capital International Emerging Markets Index has risen twice as fast as a measure of developed countries this year, as investors bet sustained global economic growth will bolster profits. Rogers said he remains bullish on commodities, including agricultural products and metals.
The emerging markets index has jumped 17 percent in 2007, compared with the 8.2 percent gain in the MSCI World Index of developed economies. Shares in developing countries have outperformed every year since 2001, with benchmarks in Brazil, China, India and Malaysia all touching records this year.
``Valuations are not super-attractive as these markets have run up quite a lot,'' said Christopher Wong, who helps manage $25 billion at Aberdeen Asset Management in Singapore. ``If markets continue to go up like this, we do expect a correction.''
MBAs on Airplanes
``I've sold out of nearly all the emerging markets,'' Rogers said, without naming them. ``Right now, there are probably 10,000 young MBAs on airplanes flying around from one emerging market to another.''
The International Monetary Fund in April forecast that the world economy is expected to grow 4.9 percent this year, as expansion in developing nations helps to compensate for a slowdown in the U.S.
China, the world's fastest-growing major economy, is estimated to grow 10 percent this year, while India's economy may expand 8.4 percent, the IMF said.
``The only one I didn't sell was China,'' said Rogers. ``I don't ever want to sell China, but if China doubles again this year, then it's a full-fledged bubble and I'll have to sell.''
China's benchmark CSI 300 Index fell 4.2 percent last month, the first monthly decline since July 2006. Still, the index almost doubled in the first five months of this year, building on a 121 percent advance in 2006.
China Gains
Those gains have helped make China the world's most expensive major stock market. The CSI 300 is valued at about 41 times earnings, about twice as much as the MSCI Asia Pacific Index. The Standard & Poor's 500 Index is worth 18 times earnings, while Europe's Dow Jones Stoxx 600 Index is valued at about 15 times.
Concerns that emerging markets are overvalued may be slowing investors' enthusiasm.
Global emerging market funds drew $696.4 million in the first half of 2007, according to estimates by Boston-based Emerging Portfolio Research Inc. That's slowed from $6.53 billion a year earlier.
``I'm long nearly all agricultural commodities, about 20 of them, because that's the place to be,'' said Rogers. ``It's better than the stock market, the bond market or any other market that I know of right now.''
To contact the reporters for this story: Paul Gordon in Hong Kong on pgordon6@bloomberg.net ; Chen Shiyin in Singapore at schen37@bloomberg.net Last Updated: July 2, 2007 04:19 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=az8wlDm_hoA0&refer=home
mms://media2.bloomberg.com/cache/vpEN14qDsghs.asf
By Chen Shiyin and Paul Gordon
July 2 (Bloomberg) -- Jim Rogers, who predicted the start of the global commodities rally in 1999, said he's sold out of all emerging markets with the exception of China because they're ``over-exploited.''
``I'm hoping when the next big correction comes I'm smart enough to buy some of them back,'' Rogers, chairman of New York- based Beeland Interests Inc., said in an interview in Singapore today. ``They're all over-exploited, so I've sold out.''
The Morgan Stanley Capital International Emerging Markets Index has risen twice as fast as a measure of developed countries this year, as investors bet sustained global economic growth will bolster profits. Rogers said he remains bullish on commodities, including agricultural products and metals.
The emerging markets index has jumped 17 percent in 2007, compared with the 8.2 percent gain in the MSCI World Index of developed economies. Shares in developing countries have outperformed every year since 2001, with benchmarks in Brazil, China, India and Malaysia all touching records this year.
``Valuations are not super-attractive as these markets have run up quite a lot,'' said Christopher Wong, who helps manage $25 billion at Aberdeen Asset Management in Singapore. ``If markets continue to go up like this, we do expect a correction.''
MBAs on Airplanes
``I've sold out of nearly all the emerging markets,'' Rogers said, without naming them. ``Right now, there are probably 10,000 young MBAs on airplanes flying around from one emerging market to another.''
The International Monetary Fund in April forecast that the world economy is expected to grow 4.9 percent this year, as expansion in developing nations helps to compensate for a slowdown in the U.S.
China, the world's fastest-growing major economy, is estimated to grow 10 percent this year, while India's economy may expand 8.4 percent, the IMF said.
``The only one I didn't sell was China,'' said Rogers. ``I don't ever want to sell China, but if China doubles again this year, then it's a full-fledged bubble and I'll have to sell.''
China's benchmark CSI 300 Index fell 4.2 percent last month, the first monthly decline since July 2006. Still, the index almost doubled in the first five months of this year, building on a 121 percent advance in 2006.
China Gains
Those gains have helped make China the world's most expensive major stock market. The CSI 300 is valued at about 41 times earnings, about twice as much as the MSCI Asia Pacific Index. The Standard & Poor's 500 Index is worth 18 times earnings, while Europe's Dow Jones Stoxx 600 Index is valued at about 15 times.
Concerns that emerging markets are overvalued may be slowing investors' enthusiasm.
Global emerging market funds drew $696.4 million in the first half of 2007, according to estimates by Boston-based Emerging Portfolio Research Inc. That's slowed from $6.53 billion a year earlier.
``I'm long nearly all agricultural commodities, about 20 of them, because that's the place to be,'' said Rogers. ``It's better than the stock market, the bond market or any other market that I know of right now.''
To contact the reporters for this story: Paul Gordon in Hong Kong on pgordon6@bloomberg.net ; Chen Shiyin in Singapore at schen37@bloomberg.net Last Updated: July 2, 2007 04:19 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=az8wlDm_hoA0&refer=home
mms://media2.bloomberg.com/cache/vpEN14qDsghs.asf
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