The Fortescue Metals Group Limited (ASX: FMG) share price could be an interesting idea to think about for a few different reasons.
Fortescue is one of Australia’s biggest miners, with several assets. In FY21 it shipped 182.2 mt of iron ore, which was 2% higher than what it did in FY20. It currently has the Chichester Hub in the Chichester Ranges, the Solomon Hub in the Hamersley Ranges, it is developing the Western Hub (140km west of Solomon) which includes the new Eliwana mine and it owns its Hedland operations.
The Hedland operations are wholly owned and have purpose-designed rail and port facilities, constructed to deliver iron ore from the mines to Port Hedland to ship the commodity to customers. Its railway covers 760km of track, which it claims is the fastest and heaviest haul line in the world.
That’s the current business. Here are three reasons why the Fortescue share price could be one to consider:
Lower share price
The Fortescue share price has fallen by around a third over the past two months. There could be a few different factors. Analysts point to the decline of the iron ore price and perhaps the ongoing uncertainty in the Chinese real estate market as key contributors to the problems.
According to the latest news reports, not only is Evergrande facing problems, but there are now other Chinese real estate businesses also seemingly missing payments or in difficult financial trouble including Fantasia, Sinic Holdings and Modern Land (China).
Either way, the Fortescue share price is now substantially lower than where it was a few months ago, making it potentially better value.
Two of the largest broker ratings have come from brokers that rate the Fortescue share price as a buy. Ord Minnett has price target on Fortescue of $25 and Macquarie Group Ltd (ASX: MQG) has a price target of $21.
Growth of other projects
Fortescue is looking to expand its mining operations, so that it isn’t so focused on lower grade iron ore.
The Iron Bridge Magnetite Project is an important part of that. It’s costing between US$3.3 billion to US$3.5 billion to develop, but it will deliver 22mt per annum of high grade 67% Fe magnetite concentrate product. This is located 145km south of Port Hedland.
Fortescue said the innovative process design, including the use of a dry crushing and grinding circuit, will deliver globally competitive capital intensity and operating costs.
The company continues to look for iron ore that can be produced at low cost in Australia.
It’s also looking for copper-gold in the Paterson, Rudall and Goldfields regions in Western Australia. Fortescue says additional exploration activity is underway in New South Wales and South Australia, including through the farm-in and joint venture agreement with Tasman Resources in South Australia.
On top of that, it is looking for global opportunities and commodities that can support decarbonisation and electrification of the transport sector. It’s looking for copper in Ecuador and copper-gold in Argentina.
It’s also assessing exploration and development opportunities in Peru, Chile and Brazil, as well as Portugal and Kazakhstan.
Plus, it has a 19% stake of the Canadian-listed Candente Copper Corporation.
Fortescue Future Industries (FFI)
FFI is a division of Fortescue. Its goal is to become the world’s leading, fully renewable energy and green products company, powering the Australian economy and creating jobs for Australia as the country transitions away from fossil fuels.
One of the most recent announcements out of FFI was the construction of the world’s largest electrolyser, renewable industry and equipment manufacturing centre at Gladstone, Queensland.
The Fortescue share price rose 5% on the day that this was announced.
This global green energy manufacturing centre (GEM) will be the first in a series of centres that will “transform regional Australia throughout the manufacture of equipment that is critical to the generation of renewable energy and green hydrogen”. The GEM will be a key enabler of Fortescue achieving its target of carbon neutrality by 2030.
The GEM will include the manufacture of wind turbines, solar photovoltaic cells, electrolysers, long-range electric cabling, electrification systems and associated infrastructure.
Subject to customer demand, as orders firm for both electrolysers and the associated green industry, the investment could be up to US$650 million. The initial electrolyser investment is expected to be US$83 million.
Should you invest $1,000 in Fortescue right now?
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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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