The Fortescue Metals Group Limited (ASX: FMG) share price has put an end to its poor run and has raced higher on Thursday.
At the time of writing the iron ore miner's shares are up 5% to $4.92.
What happened?
Although the iron ore price rose last night and futures are pointing to gains today, I feel today's gain has less to do with that and more to do with Fortescue's potential future plans.
After all, while the benchmark 62% fines lifted 1.4% to US$59.35 a tonne according to Metal Bulletin, the low grade 58% fines that Fortescue produces continued to sink lower.
Prices of 52% fines fell 1.4% to US$34.19 a tonne. This is within a whisker of a two-year low and less than a dollar away from a record low. Hardly a reason to be fighting to get hold of Fortescue shares today.
So today's gain is most probably related to news that the company has its eyes on the lithium market.
According to the Fairfax press this week, the miner's CEO Nev Power confirmed that Fortescue has begun looking for lithium in the Pilbara region of Western Australia close to operations operated by Mineral Resources Limited (ASX: MIN) and Pilbara Minerals Ltd (ASX: PLS).
The company has taken this action in response to the bullish outlook for lithium and electric vehicles worldwide.
Should you invest?
I think this is a smart move by Fortescue. With low grade iron ore prices close to record lows, I believe diversifying its operations would be a great way to lower its overall risk.
However, it does take considerable time to commission a mine, so this won't be something that the company will benefit from immediately.
In light of this, I would suggest investors only buy Fortescue shares if they are confident that the iron ore price will lift over the next 12 to 24 months.
