Iron ore behemoth Fortescue Metals Group Limited (ASX: FMG) has outgunned some of Australia's largest listed miners including BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) to be ranked one of the top 10 mining companies in the world by total shareholder return (TSR).
Respected consulting firm Boston Consulting Group compiled the list as part of is 2014 'Value Creators' report. The process pitted over 1,600 globally listed companies against each other by comparing five-year total shareholder return between 2009 and 2013. Fortescue was one of only two ASX-listed companies to make the cut, the other was logistics company Qube Holdings Ltd (ASX: QUB).
Total shareholder return factors in share price gain and dividends and Fortescue clocked up an average annual TSR of 26% over the five years. At this rate it could easily be considered the ASX's best resource company and one worthy of your investment dollar.
There's just one problem. The period under consideration coincided with the stratospheric rise in the price of iron ore driven by significant Chinese economic growth and a boom in construction. Between 2009 and 2011 iron ore prices jumped from US$59 per tonne, to as much as US$187 per tonne as demand climbed.
Fortescue as a company was also growing at a stratospheric rate. Between 2009 and 2013 full year revenue exploded 340% from US$1.831 billion to US$8.057 billion, while net profit shot up 240% as production ramped up.
Fortescue has continued this boom into 2014, reporting an incredible 45% increase in revenue and 57% increase in NPAT to US$2.7 billion.
However from a risk perspective Fortescue is highly exposed to the fate of iron ore prices and this growth could be set to slow if prices decline further. Iron ore has hit US$90 per tonne this week and has lost US$45 per tonne this year as concerns over demand grows.
Fortescue forecasts continued growth in steel consumption from China through to 2020, but supply from producers including BHP is also expected to continue to increase which could moderate prices. If this happens, Fortesuce's exceptional run of shareholder returns may moderate likewise.
