Founder and chairman of Fortescue Metals Group Limited (ASX: FMG), Andrew 'Twiggy' Forrest has seen his net worth drop by $2 billion, thanks to the plunging iron ore price.
From a high of US$187 a tonne in February 2011, the commodity price dropped to below US$90 a tonne in September 2012, before recovering to trade above US$100 a tonne for most of 2013 and the first few months of 2014.
The spot iron ore price fell 1.6% to new five-year lows overnight of US$84.30 a tonne, a drop of 37% since January 2014.
From a high of $6.22 in February 2014, Fortescue's shares have dropped to $3.86 today, the lowest price in more than a year. Mr Forrest has much of his wealth tied up in Fortescue, thanks to his 33.2% shareholding. In seven months, more than $2.4 billion has been wiped off the value of his shares, and are now worth just over $4 billion.
But don't be surprised if the wily miner has been stocking up on shares in the last few days. Mr Forrest has been known to plunge into the market when he thinks the shares are cheap. He last bought Fortescue shares in June at an average price of $3.98, and before that in May this year, at an average price of $4.87.
The current iron ore price is dipping perilously close to Fortescue's estimated breakeven price of around US$77 per tonne – although I calculate it at around US$64 per tonne.
At the same time, Fortescue is breaking all records in monthly iron ore production. In August, the miner shipped more than 15 million tonnes of ore. At that pace, Fortescue will easily crack its target of between 155 and 160 million tonnes for the 2015 financial year – and likely to lower its costs of production even further.
Of more concern for investors are the junior miners, BC Iron Limited (ASX: BCI), Arrium Limited (ASX: ARI), Mount Gibson Iron Limited (ASX: MGX) and Atlas Iron Limited (ASX: AGO). All four could easily become loss-making operations (if not already) if the iron ore price keeps falling.
