{"id":59637,"date":"2014-09-01T19:49:45","date_gmt":"2014-09-01T23:49:45","guid":{"rendered":"http:\/\/countingpips.com\/?p=59637"},"modified":"2014-09-01T19:49:45","modified_gmt":"2014-09-01T23:49:45","slug":"why-the-fortescue-metals-group-share-price-fell-today-4","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/09\/why-the-fortescue-metals-group-share-price-fell-today-4\/","title":{"rendered":"Why the Fortescue Metals Group Share Price Fell Today"},"content":{"rendered":"
September 1, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

What Happened to the Fortescue Metals Group Share Price?<\/h2>\n

Shares of Fortescue Metal Group [ASX:FMG]<\/strong> fell 1.92% to $4.09 today. The iron ore price is trading lower this week, now at US$87.90 per tonne. This represents a profit margin of roughly $7.90 per tonne for Fortescue. <\/p>\n

On a separate note, I\u2019ll be providing analysis on the future of the iron ore industry in Diggers and Drillers this week. <\/p>\n

Why Did This Happen to FMG Shares?<\/h2>\n

Fortescue Metals Group Ltd is an iron ore production and exploration company with assets located in the Pilbara region of Western Australia.<\/p>\n

Like many other iron ore operators, Fortescue\u2019s share price has struggled recently. The company\u2019s share price has fallen by 30% since the beginning of this year. <\/p>\n

Fortescue is effectively a leveraged play on the iron ore price. However, it has two issues:<\/p>

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1)\tFortescue has a high cost of production for a large miner. Analysis suggests that if the iron ore price falls below US$80 per tonne, Fortescue would lose money. <\/p>\n

2)\tFortescue\u2019s net debt (cash less debt) represents roughly 50% of its market capitalisation of around US$7.2 billion. This is very high, though it\u2019s improved slightly since the last quarter as its cash balance has risen.<\/p>\n

The company increased its cash position by roughly US$500 million in the June quarter to US$2.4 billion. As long as this trend continues, the company should safely be able to meet its debt obligations over the next couple of years.<\/p>\n

Nonetheless, further declines in the price of iron ore will squeeze Fortescue\u2019s profit margin. This is what worries investors. <\/p>\n

And for this reason, Fortescue will remain a leveraged play on the iron ore price.<\/p>\n

What Now for Fortescue Metals Group Ltd?<\/h2>\n

FMG recorded a production run-rate of roughly 155 million tonnes per year over the quarter, thanks to the completion of the Kings Valley project.<\/p>\n

Fortescue\u2019s share price direction will depend on the iron ore price. Although the iron ore price dipped below the crucial US$90 support level, FMG\u2019s share price has held up relatively well and hasn\u2019t really moved since May. <\/p>\n

If the iron ore price can increase and hold above the US$100 dollar level, Fortescue\u2019s share price should be trading above $5 per share. <\/p>\n

Jason Stevenson+<\/a>
Resources Analyst, Money Morning<\/em><\/strong> <\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post Why the Fortescue Metals Group Share Price Fell Today<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

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\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au What Happened to the Fortescue Metals Group Share Price? Shares of Fortescue Metal Group [ASX:FMG] fell 1.92% to $4.09 today. The iron ore price is trading lower this week, now at US$87.90 per tonne. This represents a profit margin of roughly $7.90 per tonne for Fortescue. On a separate note, I\u2019ll be providing […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-59637","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59637","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=59637"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59637\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=59637"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=59637"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=59637"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}