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What is dragging FMG shares lower?

A fatal incident at Fortescue Metals’ mining hub continued to weigh on shares of the world’s fourth largest iron ore producer.

  • Fortescue Metals Group (ASX: FMG) share price loses 1.3% on the day
  • The outlook on iron ore prices has soured further
  • FMG has resumed operations at a mining site, after a worker died
  • Keen to take advantage of FMG’s falling share price? Open an account with us to short the stock now.

FMG stock price weakens further

Australian mining giant Fortescue Metals Group, the world’s fourth-biggest iron ore producer, saw its stock tumbling again on Monday.

The counter lost another 1.3% day-on-day to trade at A$14.38 as at 14:20 AEST in Sydney. It fell 22.5% over the past month.

As of Monday morning, the ASX-listed stock garnered 10 ‘sell’ ratings from analysts, six ‘buy’ calls, and four ‘hold’ recommendations.

The research teams’ average 12-month target price stood at A$17.20, according to Bloomberg data.

Macquarie gave an ‘outperform’ recommendation last Friday, whereas Credit Suisse was ‘neutral’; both analysts had A$21 price targets.

Why is JPMorgan optimistic on FMG?

Fortescue’s stock already sank to around A$15 in late September, prompting analysts at JPMorgan to opine that the shares were ‘oversold’ and ‘offer an attractive buying opportunity over the medium term’.

Although the analysts acknowledged the significant uncertainty hanging over China’s property sector and the subsequent impact on steel demand, they see ‘significant valuation support’ for the stock.

JPMorgan gave an ‘overweight’ rating on FMG with an A$26 target. ‘The company offers exposure to long-life operations, with attractive margins and expansion optionality over the long term,’ it said.

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Outlook on iron ore sours

S&P Global reported on Friday that the outlook for iron ore prices had worsened, after China cut steel production, major property developer Evergrande defaulted, and the country continued to work to reduce pollution from its economy.

Iron ore prices slumped through August, dropping about A$100 per tonne to as low as A$94 by mid-September for the S&P Global Platts Iron Ore Index on 62% iron fines.

For the fourth quarter this year, prices may ‘struggle’ and return to around A$100 per tonne, said Liberum Capital.

With prices in the A$100 range, analysts doubt Fortescue and other iron ore majors will cut supply, as they continue to generate profits around that mark.

FMG restarts mining operations after worker’s death

A worker at Fortescue’s Solomon Hub in Western Australia died after the ground collapsed last Thursday.

The company was thus forced to temporarily halt work there, and said that it was working closely with the state’s police and mining department.

The pause partly resulted in a spike in iron ore prices on Thursday, Reuters reported.

The Solomon mining hub comprises several mines, with a production capacity totalling 75 million tonnes per year.

On Friday, a day after the fatality, the company said it had resumed operations at the mine site, and noted that its cost and output forecasts for fiscal 2022 remained unchanged.

FMG announced: ‘Ore processing activity has recommenced and mining activity is progressively resuming. Fortescue continues to work closely with all relevant authorities on the incident investigation.’

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