{"id":59922,"date":"2014-09-05T10:51:03","date_gmt":"2014-09-05T14:51:03","guid":{"rendered":"http:\/\/countingpips.com\/?p=59922"},"modified":"2014-09-05T10:51:03","modified_gmt":"2014-09-05T14:51:03","slug":"why-the-fortescue-metals-group-share-price-fell-today-5","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/09\/why-the-fortescue-metals-group-share-price-fell-today-5\/","title":{"rendered":"Why the Fortescue Metals Group Share Price Fell Today"},"content":{"rendered":"
September 5, 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

\nShares of Fortescue Metal Group [ASX:FMG]<\/strong> fell 3.21% to $3.92 today. The iron ore price<\/a> is at a five year low, falling US$1.40 to US$84.30 per tonne. This represents a profit margin of roughly $4.30 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 Fortescue Metals Group?<\/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 34% 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.
\n2)\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. Fortescue hasn\u2019t traded at this level since September last year. A sharp increase in the iron ore price should reward Fortescue shareholders. <\/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

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\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 3.21% to $3.92 today. The iron ore price is at a five year low, falling US$1.40 to US$84.30 per tonne. This represents a profit margin of roughly $4.30 per tonne for Fortescue. On a separate note, I\u2019ll […]<\/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-59922","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59922","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=59922"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59922\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=59922"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=59922"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=59922"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}