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Iron ore price drop to determine FMG fortunes

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Iron ore miner Fortescue Metals Group (AU: FMG) is scheduled to report its half year earnings results on Wednesday, 16 February.

Fortescue Metals Group reported its highest ever annual profit and dividend August 30 due to sky-high iron ore prices. The company posted an underlying net profit of $10.35 billion, up from $4.75 billion a year ago and a final dividend of $2.11 per share, up from $1 a share last year, taking its total dividend for the year to $3.58 or $11 billion. It plans to become the first major supplier of green iron ore. 

A drop in the price of iron ore - futures in Singapore were more than 10% lower on Tuesday afternoon to around $US131 a tonne - could affect the dividend payment. In May 2021, iron ore was trading above $US200 a tonne.

FMG closed down 5% on Tuesday afternoon, and is up 11% year to date, but down 9% for the past 12 months.

On Investing.com, 7 analysts have a Sell recommendation on Fortescue, 8 remain Neutral and there are 3 Buy ratings.

Citi retains a Sell rating and $17.00 price target. Credit Suisse downgraded Fortescue’s shares to an Underperform rating with a $14.00 price target. It says valuation is stretched, and shares trade on much higher multiples than its peers. Goldman Sachs retains a Sell rating and a $13.50 price target. Based on the current Fortescue share price, this is a potential downside of about 30%.

The company is searching for a new chief executive, after Elizabeth Gaines announced her intention to resign in December. Fortescue has lost a string of top executives in the past few months.

The S&P/ASX 200 closed down 0.5% at 7206.90, having touched an intraday low earlier of 7198.

BHP on Tuesday declared a record $US1.50 ($2.10) interim dividend after booking a $US9.44bn half-year profit, buoyed by a surge in the price of key commodities.

Stronger pricing in iron ore, coal, oil and copper boosted the mining giant’s after-tax profit, which more than doubled for the six months to December 31 from $US3.88bn a year earlier. In a statement to the ASX, the company said underlying earnings before tax, interest, depreciation and amortisation were $US18.46bn. Shares closed flat for the day.

China’s CSI 300 index climbed about 1% after the nation’s monetary authority injected a net 100 billion yuan ($US15.7 billion) into the banking system with its medium-term lending facility. Equities retreated in New Zealand, Japan and Hong Kong.

WTI crude oil dropped below $US95 a barrel after rising above that level overnight for the first time since 2014. Brent crude oil is trading around $US95.88 a barrel.


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