Mining and Heavy Industries

FMG a big winner as iron ore prices lift

Two fortescue locos - Photo FMG

Fortescue Metals Group has experienced a near quadrupling of its share price since January off the back of an improved iron ore price and a more stable, positive outlook in the sector.

FMG’s share price hit a two-and-a-half-year high this week, peaking at $5.56 on Wednesday, October 26, after it went as low as $1.44 at one point early in 2016 – representing a 286% increase in a 10 month span.

The miner’s market capitalisation now sits above $17 billion, up from just $4.5 billion in January.

The substantial boost is a result of an iron ore price which has risen to US$59.28 overnight, with the positive market outlook further reflected by iron ore futures which rose to US$70 this week, the highest mark since August 2014.

Fortescue can also credit its significant cost cutting drive for the positive movement in its share price.

In an investor presentation this week, the company outlined a number of improvements, including its blending, processing and other operational efficiencies, would help it lower its C1 costs to between US$12 and US$13 a tonne in the 2016/17 financial year, down from US$15.43 in 2015/16.

Fortescue is now estimating a breakeven price of iron ore of US$28.30 a tonne in 2016/17, meaning it will profit significantly if the price stays around the US$60 mark.

The miner also announced an increase in both the shipping and production of iron ore during the September quarter, with a 5% year-on-year increase in shipments to 43.8 million tonnes.

“Iron ore and steel markets continued to be supported by infrastructure and housing activity in China,” the company reflected in a statement. “Steel consumption in China remains stable and together with exports resulted in annualised steel production of 809 million tonnes at the end of September.”

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