Cadence: Fortescue in severe financial difficulty

Karl Siegling, the Chairman of Cadence Capital says there are “weird things” happening in the iron ore market at the moment, which is causing producers to lock in losses in the hope of cutting costs or iron ore prices returning to higher levels. “Rio’s in the fortunate position that their cost of production is much lower than Fortescue or Atlas, which is why they will survive. And is one of the reasons why they’d be hopeful that the price goes lower, so that competitors go out of business. But all the time their cash flow just goes down and down and down and down. I think most analysts would say to you that iron ore was 75% of Rio’s earnings last year… and that number is going to shrink dramatically. Imagine 75% of your annual wage just disappearing. You’d be living on 25% of your annual wage. That’s what’s effectively happened to Rio.” Siegling says there’s now a “high chance that Fortescue is in severe financial difficulty” and he outlines the bear case in this video: