Fortescue Metals Share Price Surges Following Vale’s Collapse

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:

FMG Share Price
Source: CommSec

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:

Fortescue Metals Share Price

Source: tradingview.com

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.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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