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FMG share price: where next after $8m of farm-in deals announced?

The FMG share price finished last week off strongly, rising 3.78% during Friday’s session after announcing a number of joint venture deals to the market during the week.

It’s been a busy week for iron ore giant Fortescue Metals Group (ASX: FMG).

The announcement of two farm-in deals totalling $8m and news that FMG is not the preferred bidder for the Guinea-based, Simandou iron ore deposit nonetheless saw the company's share price close out the week strongly, rising 3.78% during last Friday’s trading session.

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FMG share price: a $2 million potash farm-in

Reward Minerals last week announced that it had executed a $2m Farm-in and Joint Venture with FMG over its North-Western Australia potash project.

Under this agreement, Reward Minerals will retain all rights to evaporate minerals such as potassium and magnesium' at the Western Australian site. The company's potash (SOP) infrastructure it is also protected under the joint agreement.

As part of this deal, Fortescue will act as the operator of the Venture, with it also being noted that the iron ore giant 'has the right to earn an 80% joint venture interest', on the condition that FMG spends $2m developing the site over four years.

FMG has a ‘minimum expenditure obligation of $400,000,' Reward noted.

Copper, gold and base metals venture

That wasn't the only Joint Venture and Farm-in agreement that Fortescue made last week, mind you.

FMG also entered into a Joint Venture with Carawine Resources, a company with projects concentrated on copper, gold and base metals.

As part of the deal, Fortescue will initially pay $125,000 in cash and $500,000 on exploration within the first year-and-a-half of the Joint Venture.

Like the Joint Venture with Reward, FMG may earn a significant 75% joint interest – at the overall cost of $6m – across the following two stages:

  • 'Stage 1: 51% interest after $1.5 million exploration spend within three years
  • Stage 2: 24% interest after additional $4.5 million exploration spend within four years.'

Speaking of the potential of this agreement, Carawine Resource’s Managing Director, David Boyd commented that this deal:

‘Ensures Carawine is well positioned to share in the benefit of any discovers, with Fortescue well placed to support a potential development should the explorational activities be successful.'

Iron ore deal in focus

To cap off this week of deals, FMG announced that it had been informed by the Guinea government that it ‘is not the preferred bidder in the recent tender for mining rights on mineral deposits on Simandou Blocks 1 and 2.'

That announcement, coming Thursday, didn’t seem to worry investors much, as the FMG share price rose 4.62% from Thursday to Friday – closing out the week at $9.06 per share.

The stock however, fell today.

Besides these deals, one ultimately wonders what is driving this bullish share price action. The iron ore price remains well off its recent highs and analysts continue to be mixed on FMG’s prospects. Yet the stock remains resilient.

According to the Wall Street Journal, analysts have a hold consensus rating on FMG: with three analysts rating the stock a buy, nine a hold and six a sell.

And though the Farm-in deals discussed above are indeed positive, they are unlikely to shift the needle for FMG's share price: To gauge where the stock will head next, one may be best enlightened by monitoring the price of iron ore. Though even that has proved an uncertain indicator in recent times.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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