Could this help Fortescue (ASX:FMG) mitigate the risks of falling iron ore prices?

Fortescue has a plan to achieve higher iron ore prices.

| More on:
Happy man in high vis vest and hard hat holds his arms up with fists clenched celebrating the rising Fortescue share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Fortescue Metals Group Limited (ASX: FMG) share price is currently up around 2%. This is on the day on a high level of ASX share market volatility relating to the Omicron COVID-19 variant.

Despite the volatility, there is some company-specific news about Fortescue today.

Fortescue links up with a digital auction platform

According to reporting by the Australian Financial Review, the large iron ore miner is planning to sell some of its iron ore through the GLX Connect platform, which is a commodity trading service.

This is the same platform that has enabled Pilbara Minerals Ltd (ASX: PLS) to achieve some very high prices for sale of its lithium.

If the deal goes ahead, then Fortescue will also become a shareholder in GLX Digital, the owner of the auction platform. The iron ore miner will initially get less than 1% of the shares, but could get more as it conducts auctions on the platform.

One of the attractions of GLX Connect is that it empowers the seller by allowing it to design and manage its own auction terms. It also allows the seller to "manage counter-party risk by choosing who is invited to participate in auctions."

The participants in the auction are supposedly attracted to the precise terms, including the volume and delivery schedules.

The AFR reported that access to the platform will cost Fortescue US$100,000 a year for three years, though the deal hasn't been signed yet.

However, at least to start with, Fortescue is only going to sell a small amount on the platform.

Time will tell whether this has an impact on the Fortescue share price over the longer-term.

A spokesman for the iron ore miner said to the AFR:

Fortescue is exploring the potential to trial new platforms to complement our existing sales and marketing channels. The majority of Fortescue's products will continue to be sold via existing contractual seaborne arrangements, as well as our portside sales entity FMG Trading Shanghai.

Other initiatives to get a better price

It was also reported that Fortescue is now selling at least six different iron ore products, with one of those being a higher grade offering. When the Iron Bridge project is finished, that is expected to lead to another, higher quality product.

The AFR reported that Fortescue is working at Chinese ports to sell smaller volumes of iron ore to new, smaller customers that may not want to buy the same volume as Chinese steel mills. Some of these deals are being done in Chinese currency, rather than US dollars.

Is the Fortescue share price good value?

Opinions are mixed on the business. One of the latest opinions comes from Credit Suisse, which is 'neutral' on the business but the price target is $13.50 – approximately 20% lower than today. The broker is expecting the iron ore price to hit a low in December.

Then there's Morgan Stanley which rates Fortescue as a sell/underweight with a price target of just $12.50 on concerns of a lower iron ore price and a bigger discount for Fortescue's lower grade iron.

One of the most positive brokers about the business is Macquarie Group Ltd (ASX: MQG) with a buy/outperform rating and a price target of $21.

Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Resources Shares

busy trader on the phone in front of board depicting asx share price risers and fallers
Resources Shares

Why did investors keep buying BHP and Fortescue shares amid price falls in FY25?

BHP and Fortescue shares were the most traded stocks of FY25 and had the highest buy ratios, data shows.

Read more »

Three miners stand together at a mine site studying documents with equipment in the background
Resources Shares

Up 46% since June, should you still buy Pilbara Minerals shares right now?

A leading expert offers his verdict on Pilbara Minerals' resurgent share price.

Read more »

Female miner smiling at a mine site.
Resources Shares

Up 60% this year, this ASX 200 mining stock just smashed production records

Production surge headlines quarterly results.

Read more »

a man in a hard hat and high visibility vest smiles as he stands in the foreground of heavy mining equipment on a mine site.
Resources Shares

After lifting its price target, Macquarie now expects 36% upside from this ASX mining stock

The precious metals producer released better-than-expected production guidance.

Read more »

A miner in a hardhat and high visibility clothing makes a thumbs up symbol.
Resources Shares

4 reasons to buy Rio Tinto shares today

A leading expert forecasts strong growth potential for Rio Tinto shares.

Read more »

Man with rocket wings which have flames coming out of them.
Resources Shares

Why Macquarie expects this ASX All Ords copper stock could surge 38%

With costs coming in below expectations, this ASX All Ords copper stock could rocket higher over the coming months.

Read more »

Iron ore price Vale dam collapse ASX shares iron ore, iron ore australia, iron ore price, commodity price,
Resources Shares

Major miners up as China announces new mega project

Can a new mega-dam absorb iron ore oversupply?

Read more »

A young man sits at his desk with a laptop and documents with a gas heater visible behind him as though he is considering the information in front of him. about the BHP share price
Broker Notes

Leading broker has just downgraded BHP shares. Is it time to sell?

Macquarie sees little upside. But why?

Read more »