|Front page of the business section today is being dominated by one company, Fortescue Metals, one of Australia’s largest mining companies. It reported its annual results yesterday and they were well ahead of expectations on a number of fronts. And as we wrote previously (see here) expectations are everything.
Who/What is Fortescue Metals?
Fortescue Metals is a MASSIVE mining company, which solely mines Iron Ore in Western Australia. Andrew “Twiggy” Forrest is the company’s’ CEO and
as you’ll see shortly, he is a pretty happy chappy right now.
And Iron Ore?
Iron Ore is the central building block of steel and steel is the single most used metal in the world. We need steel for pretty much every kind of construction imaginable. It goes in buildings, railways, pipes, machines, cars, trains, planes, boats, airports, bridges, tunnels and a whole host of other things. Put another way, steel is a fundamentally important component of economic growth. If we want to build new things, we need steel. And if we need steel we need iron ore. And if we need iron ore, we kind of need Fortescue….
Why do Investors “like” investing in a company like Fortescue?
Like with most mining companies, investing in Fortescue Metals, is essentially a “bet” that the price of the commodity they mine is going to be in strong demand going forward. In Fortescue’s case, that commodity is Iron Ore. And over the last few years, that has certainly been the case.
“Insatiable demand” from China has been a term thrown around for a while now, and its been kind of true. As they continue to industrialise and people move from the country to the city, new buildings and roads and railways need to be constructed. China’s been on this journey for a long time and have been a key driver of Fortescues success.
In general, strong economic growth around the world means strong demand for iron-ore.
Anyway, big introduction for a short conclusion. Yesterday, Fortescue announced their results and aside from reporting a large profit, what got investors super excited was that unlike Telstra, they were going to INCREASE THEIR DIVIDEND, paying investors 45 cents for every share they owned this year. That is a meaningful improvement from the 5 cent dividend they paid back in 2015 and was better than the increase investors had expected.
So why is Twiggy Twigging Out? He owns a billion shares of Fortescue. Yes, 1,000,000,000 shares. You do the maths.