In what could be one of the most exciting match-ups in the Motley Fool's ASX World Cup, iron ore titan Fortescue Metals Group Limited (ASX: FMG) goes head to head with troubled gold miner Newcrest Mining Limited (ASX: NCM).
Although Fortescue out muscles Newcrest with a market capitalisation of $13.6 billion, the companies are each highly reliant on a single commodity which gives them similar characteristics.
The key stats:
|
Factor |
Measure |
Newcrest Mining (ASX: NCM) |
Fortescue Metals Group (ASX: FMG) |
| Size | Market cap |
$7.5 billion |
$13.6 billion |
| Operations | Net margin %¹ |
13% |
41% |
| Growth | Five-year NPAT CAGR |
-1.36%² |
28% |
| Balance sheet | Debt/Equity ratio³ |
0.70 |
2.35 |
| Dividend | % Yield |
1.2% |
4.6% |
Notes: ¹Half year to 31December 2013, ²NCM underlying NPAT, ³2H FY13 using total liabilities
Round 1: Operations
Fortescue scores from the kick-off with a massive net margin of 41%. The high price of iron ore in the half year to 31 December 2013 and large scale of operations has helped Fortescue haul in the cash with high margin operations.
Newcrest doesn't even come close to the ball here, producing a 12% net margin for the same period, dragged down by the retreating price of gold in late 2013.
Goal: FMG
Round 2: Growth
With a compounded annual growth rate (CAGR) of 28% over the last five years Fortescue again streaks away for a quick second goal. Fortescue is a young company for its size and has grown net profit from US$508 million in 2009 to US$1.75 billion in the full year FY13.
A disastrous year for Newcrest Mining which saw the company write down over $6 billion in assets puts the company on the back foot and hard pressed to compete.
Goal: FMG
Round 3: Balance sheet
With a debt-to-equity ratio of less than one Newcrest Mining scores one back against Fortescue's significant debt position. Although high debt is not inherently bad, it could become a big risk if interest rates start rising, or if commodity prices fall.
Fortunately, with earnings for the half year of US$3.2 billion, Fortescue has plenty of cash to cover net finance costs and pay down debt at current iron ore prices.
Goal: NCM
Winner!
With two unchallenged goals to one, Fortescue is the clear winner. Add in the company's juicy 4.6% dividend and Fortescue takes the game and the glory.
