What happened to the Fortescue Metals Group share price?
At the time of writing, shares of Fortescue Metals Group Limited [ASX:FMG] are up by 4.28% for the day, to $5.98 per share.
Why did Fortescue Metals Group shares do this?
Fortescue Metals Group’s share price has increased following the burst of the Brumadinho dam in Brazil ― the country’s worst mine disaster on record. The Financial Times reported today:
‘Iron ore miners in Australia climbed to multi-year highs on Tuesday after Brazil’s Vale was ordered to stop using tailing dams on its second largest operation following an accident that killed at least 134 people at another of its mines.
‘Vale said production at the Brucutú mine would be affected after a court ordered it to “refrain from throwing tailing or practising any activity potentially capable of increasing the risks of dams”. Tailings dams are used to store the byproducts of mining.
‘The collapse of the tailings dam belonging to Vale in late January was the second involving the company in over three years.’
The mining catastrophe ― albeit terrible ― has spelt ‘good news’ for Fortescue Metals Group:
Fortescue Metals Group shares have ripped higher since the incident. That’s good news for shareholders. But nothing goes up in a straight line forever.
What now for Fortescue Metals Group?
The iron ore price ― the main contributor to Fortescue Metals Group’s earnings ― seems overextended and there’s a good chance the latest news is mostly priced into the move:
The iron ore price has ripped higher since December and has surged past previous highs. That’s why FMG’s share price has outperformed the market. In that case, given iron ore is the main source of Fortescue Metals Group’s revenue, a rising iron ore price is positive for the company. But with the ongoing tragedy becoming old news by the day, the iron ore price might peak soon; albeit temporarily.
In my opinion, Fortescue Metals Group’s share price could reverse sharply in the days ahead.
The bottom line: Fortescue Metals Group’s share price looks strong today. But this could quickly change, depending on what happens with the iron ore price over the coming days. If it starts pulling back sharply, FMG’s share price could pull back towards the $4.50 level.
Resources Analyst, Markets & Money