Fortescue Metal Group Strategic Analysis Essay

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Allocated firm: Fortescue Metal Group


DATE: Monday 23 May, 2010
TO: The Board of FMG
FROM: Truman Chun Wai , a senior financial officer
SUBJECT: Future growth strategy analysis

Dear the Board,
I am glad to present to you the future growth strategy analysis report for Fortescue Metal Group.
This report had been prepared requested by the Board. The content of this report concentrated on evaluating the performance of Iron Ore Mining and providing a recommendation of any potential financial justified growth strategies for the next strategic planning horizon (3 years).
Should you have any inquires in regard to this report, please do not hesitate to contact me.
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Research summary

1) Economic overview

There are three major economic factors that have combined contribution to FMG’s growth over the past 5 years, including the strong AUD , the amazing export feature due to the Chinese boom which drives up the commodity price and the interest rate decision by RBA. Australia dollar has appeared strong for the past 5 years and maintained at $6-$6.8 level for AUD/CNY at most time. It promised a high level of foreign income for Australia exporter. In 2009, China demanded almost 60% of the world’s iron ore to produce 47% of world’s steel production. It contributes the most to the price rocket from $31.78 to $180.6 US cents/mts in 5 years time. In addition, Australia borrowing cost remains high over the past few years which may alter the finance decisions of FMG.

2) Industry overview

The seaborne iron-ore industry is very competitive globally. The company has to compete in both domestic and international markets, facing domestic competition from BHP and Rio Tinto along with international competition from CVRD. In order to gain market share, FMG has at least 10 contracts with Chinese steel companies at a bellowed-market price. In early 2010, the big three ore miners, BHP in particular, have been pushing for a renovation of the annual system, arguing that shorter-term pricing would be fairer. 40-year tradition

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