Iron ore miner Fortescue Metals Group Limited (ASX: FMG) has been on a record run over recent times. Last week, the Fortescue share price reached an all-time high of $18.92.
In late afternoon trade, Fortescue shares are down 1.43% to $17.90 along with the S&P/ASX 200 Index (ASX: XJO), which has fallen 0.9% to 6,113.5 points at the time of writing.
With the iron ore spot price sitting at US$125.50 a tonne (at the time of writing) and the company's FY20 results to be released next week, is now the best time to snap up Fortescue shares?
Image source: Getty Images
Fortescue at a glance
One of the world's largest iron ore producers, Fortescue has grown from a small mining outfit to an important player in the industry. Fortescue's core assets are located in the Pilbara region of Western Australia.
The company mines a lower iron ore grade content than its rivals BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO). At 62% Fe, Fortescue is able to seize on China's sizeable demand for the product through a discounted rate below the benchmark price.
Q4 FY20 snapshot
Fortescue updated the market at the end of July with its quarterly production report. The mining giant highlighted record iron ore shipments of 47.3 million tonnes for Q4 and 178.2 million tonnes in the past year.
C1 costs for Q4 were US$13.02 per wet metric tonne (wmt). Though this was slightly higher than the past 3 quarters at US$12.94/wmt, additional costs were impacted by COVID-19 measures taken.
Fortescue now boasts the industry's leading cost position and is on track for another bumper year as Chinese steel mills have been outstripping global iron ore supply.
Fortescue's balance sheet remains healthy with cash on hand of US$4.9 billion, a $700 million increase from Q3. Net debt was US$300 million.
FY21 guidance
As Fortescue prepares to release its full-year earnings on 24 August, iron ore shipments are expected to be in the range of 175–180 million tonnes and C1 costs of US$13–US$13.50/wmt, based on the assumed Australian dollar exchange rate of $0.70.
Speculation has been rising that shareholders could be rewarded with record dividends as Fortescue has been capitalising on its strong output and the recent high price of iron ore.
The spot price for iron ore has increased 44.25% over the past 12 months.
It is estimated that dividends will be paid out close to $1 for every Fortescue share held. That represents an annual yield of 9.8% for investors – including the 76 cents per share dividend declared earlier this year.
Should you invest?
I think that the Fortescue share price is an interesting one to watch. It's been a near perfect ride for the company. It was only back in February 2016 that the Fortescue share price was trading as low as $1.62. Long-term buy-and-hold investors would be grinning with delight.
Should its FY20 results exceed market expectations, I am confident the Fortescue share price will continue its meteoric rise.
Although iron ore demand and spot price will fluctuate, I would be happy being a buyer today to hold for the next 10 years.
