The Fortescue Metals Group Ltd (ASX: FMG) share price has fallen this week. The stock closed down 4.09% yesterday, at $7.27.
Could these falls be a good buying opportunity for quick-moving investors? Let's look at possible reasons for Fortescue's pullback, opportunities in iron ore this year, and whether now is the right time to pick up some FMG shares.
How has the Fortescue share price performed this year?
Like many Aussie resource companies, Fortescue's share price suffered in late July and early August. This could be put down to several factors. The iron ore price fell from US$117.14 per tonne on 30 July to US$93.61 on 9 August. Meanwhile, the company's June quarterly production report, released 25 July, included record quarterly shipments of 46.6 million tonnes of iron ore, and a 60 cent June dividend, bringing the total financial year dividend to 90 cents per share. This met forecasts but failed to exceed them, which it seems investors expected. Finally, the plummeting value of China's yuan hit all the Aussie miners in early August, FMG included.
From the high of $9.40 on 3 July, Fortescue shares fell as low as $6.97 on 12 August.
Since then the share price has bounced. On 13 August, Civmec Ltd (ASX: CVL) announced that they will deliver a Primary Ore Crushing and Processing Facility for Fortescue's new Eliwana Mine and Rail Project, in the Pilbara, Western Australia, thus moving that project forward. FMG's share price rose from the 12 August low of $6.97 to Wednesday's close of $7.27.
Monday also saw the announcement that Capital Group Companies, a US investment management organisation with US$1.86 trillion in funds under management, had become a substantial shareholder in Fortescue. The entry of such a massive institutional investor into the company may lend some substance to the idea that the recent price falls could represent a good opportunity to buy.
Outlook for iron ore
Much will depend from here on the health of the iron ore price. Since 2017, Fortescue has been making efforts to diversify into copper, gold, lithium and other resources. However, iron ore remains the company's lifeblood. Fortescue's share price often rises or falls based on expectations for iron ore. With BHP Group Ltd (ASX: BHP) admitting this week that some of its Pilbara iron ore shipments were lower grade than had been forecast, and Rio Tinto Ltd (ASX: RIO) having run into similar issues weeks earlier, FMG could benefit.
With the iron ore price itself still tied so closely to the health of China's economy, this means that FMG is also dependent on China's performance, and on the stability of China's trade relationships with the rest of the world.
So, is Fortescue a buy?
FMG has a relatively high price-to-earnings ratio of 17.51x, compared to its larger rivals BHP and Rio Tinto. Its dividend yield is only 3.6%, though it's worth noting that recent dividends have been significantly higher than is usual for the company. This could be a hopeful sign for income investors, but anyone buying FMG today is likely betting on future growth.
The company's full year financial results are due to be released on Monday 26 August. Doubtless more of the world's big institutional investors will be watching closely. If the recent record production numbers have translated into financial results higher than expectations, we could see FMG's recent share price falls quickly reversed next week.
