What happened to the Fortescue Metal Share Price?
Shares of Fortescue Metals Group Ltd [ASX:FMG] gained nearly 4% Tuesday, following a week of price falls.
Why did this happen to the Fortescue Metal Share Price?
The company reported a 1.16 billion tonne increase to its Greater Solomon mineral resource. This takes the total resource at Greater Solomon to 2.66 billion tonnes. The mineral resource for the Solomon Hub, which includes the Firetail and Kings Valley projects, is now up to 4.5 billion tonnes.
What now for Fortescue Metals?
The Fortescue share price has come under a lot of pressure. Fortescue’s production costs are much higher than BHP Billiton [ASX:BHP] and Rio Tinto [ASX:RIO]. Furthermore, Fortescue has a huge amount of debt that it needs to finance through cash flows.
If the iron ore price or demand for iron ore from China fall, this could have a big impact on Fortescue’s ability to repay its debt.
There is plenty to be concerned about with Fortescue, but if China continues to move from an emerging market economy towards a more developed economy, the current low share price could prove to be a short term event.
Bottom line: for the Fortescue share price to improve iron ore prices need to remain above US$100 and demand from emerging economies needs to continue to grow.