Essays on Fortescue Metals Group - Company Marketing Case Study

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The paper "Fortescue Metals Group - Company Marketing" is an outstanding example of a business case study.   Fortescue Metals Group (FMG) is a publicly listed company in Australia which deals with exploration, production, development, manufacturing, and selling of iron ore products. The company has an integrated supply chain across its main four sites in Pilbara. Apart from the railway line, the company owns several hubs such as Solomon and Chichester Hubs (Fortescue Metals Group Ltd. 2017). The company was selected for this assignment because of the following; Cost Regulation The company has succeeded to mitigate the production costs despite the depreciation of the Australian dollar and the iron ore prices.

According to Ingram (2016), the company had a free cash flow of $US 2.7 million which represented a rise of 93% in 2015 despite the fall in the iron prices by 29%. Further, the Australian dollar depreciation caused significant costs. However, the company succeeded to use the “ strip ratio” of 1:1 rather than 5:1 which has saved the company a lot of money. Sustainability Evidently, FMG processes the waste thus lowering the costs of production. The strip ratio allows the company to adopt new technologies that can manufacture the waste that was previously thrown away (Ingram 2016). The anticipation of future prices FMG plans before a price change occurs.

According to Ingram (2016), FMG already anticipates fall in the prices of the iron ore, and therefore it is leveraging its production processes to fit into the future through a positive outlook of market and finances. Management The company pays its employees including the executive based on share prices and performance (Ingram 2016). The procedure is an attractive remuneration program that enables FMG to maintain not only profitability but also sustainability. Company Research Iron Ore Business There is gloom and doom when it comes to the prices of iron ore products in their industry.

Heber (2015) claimed companies such as FMG are competing with its competitors to increase production which is causing greater supply than demand within the industry. Luckily, due to the growing economies such as China and India, the iron ore business will continue to grow. Though the prices are expected to remain low for some time, it is a higher chance for the company to hold on for some time.

Additionally, the firm can play a critical role in investing in reserves and other infrastructures. According to The Conversation (2017), the World Bank showed that the iron prices fell to $42 a metric tonne in 2016 from $59.50 in 2015. As a result, the iron prices dropped by 15% against 8% of the total metals. Nevertheless, there has been an increase to $50 which gives a promising future. Surprisingly, despite the weak demand and fall of the prices, FMG continues to expand its production through low-cost ore capacity.

Such mines are slowing replacing the higher-cost ones in countries such as China. Additionally, The Conversation (2017) stated that the Australian seaborne market continues to grow, for instance in 2015 it increased from 59% to 64% which is good for the country. Notably, iron ore trade is the second largest commodity trade after crude oil in Australia and therefore accounts for a sustainable seaborne income. Furthermore, the fact that FMG has selected to start its mines in Pilbara region shows that the company will have a continuous supply of iron ore since this place has the most significant iron ore deposits across the world (Heber 2015).

Additionally, the company is investing in better technologies that will enable the extraction and processing of the iron ores at a cheaper cost. Evidently, Fortescue has succeeded in low-cost production which allows it to be able to supply the iron ore at the market low prices. Most importantly, the World Bank forecasts that the iron prices will rise to 51 dollars by 2020 (The Conversation 2017).

The prices of iron ore, in turn, will make the low-cost miners such as Fortescue replace high-cost miners in the various parts of the world.

References

Beyer, M. 2016. Power leads Fortescue revival. [online] Business News. Available at: https://www.businessnews.com.au/article/Power-leads-Fortescue-revival [Accessed 17 Aug. 2017].

Yahoo Finance. 2017. FMG.AX Income statement | FORTESCUE FPO stock - Yahoo Finance. [online] Available at: https://au.finance.yahoo.com/quote/FMG.AX/financials?p=FMG.AX [Accessed 17 Aug. 2017].

Fortescue Metals Group Ltd. 2017. Company Overview. [online] Available at: http://fmgl.com.au/about-fortescue/company-overview/ [Accessed 16 Aug. 2017].

Fortescue Metals Group Ltd. 2017. Corporate Governance. [online] Available at: http://fmgl.com.au/investors-media/corporate-governance/ [Accessed 17 Aug. 2017].

Fortescue Metals Group Ltd. 2017. Financial Reports. [online] Available at: http://fmgl.com.au/investors-media/reports/financial-reports/ [Accessed 17 Aug. 2017].

Fortescue Metals Group Ltd. 2017. Vision and Values. [online] Available at: http://fmgl.com.au/people-and-careers/working-with-fortescue/vision-and-values/ [Accessed 16 Aug. 2017].

Heber, A. 2015. Mining giant Fortescue is fighting claims it proposed an iron ore price cartel. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/australian-mining-giant-fortescue-is-fighting-claims-it-called-for-an-iron-ore-price-cartel-2015-3 [Accessed 17 Aug. 2017].

Hubbard, G., Rice, J. and Galvin, P., 2014. Strategic management. Pearson Australia.

Ingram, T. 2016. Why Fortescue Metals Group has finally become unshakeable. [online] Financial Review. Available at: http://www.afr.com/business/mining/why-fortescue-metals-group-has-finally-become-unshakeable-20160828-gr2u4s [Accessed 16 Aug. 2017].

Korporaal, G. 2017. India looms large on iron ore. [online] Theaustralian.com.au. Available at: http://www.theaustralian.com.au/business/mining-energy/india-looms-large-on-the-iron-ore-horizon-fmg/news-story/eb1fc5071fa541e7fb7933bcbb297061 [Accessed 17 Aug. 2017].

Lawrence, K. and Nehring, M. 2015. Market Structure Differences Impacting Australian Iron Ore and Metallurgical Coal Industries. Minerals, 5(3), pp.473-487.

Market Watch. 2017. Fortescue Metals Group Ltd. ADR. [online] Available at: http://www.marketwatch.com/investing/stock/fsugy/profile [Accessed 17 Aug. 2017].

The Conversation. 2017. Iron ore still has an important role to play in Australia's economy. [online] Available at: http://theconversation.com/iron-ore-still-has-an-important-role-to-play-in-australias-economy-54476 [Accessed 18 Aug. 2017].

Treadgold, T. 2016. Cost-competitive FMG steps up. [online] Business News. Available at: https://www.businessnews.com.au/article/Cost-competitive-FMG-steps-up [Accessed 17 Aug. 2017].

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