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Why the Fortescue (ASX:FMG) share price is up 28% in December

The Fortescue Metals Group Limited (ASX: FMG) share price hit a record-high on Friday, and is on the move again today. Here’s why…
The post Why the Fortescue (ASX:FMG) share price is up 28% in December appeared first on The Motley Fool Australia. –

rising asx share price represented by investor in hard had looking excitedly at mobile phone

The Fortescue Metals Group Limited (ASX: FMG) share price hit a record-high in intraday trading on Friday, and is on the rise again today. Since the start of the month, the Fortescue share price is up 27.54%, making it one of the best movers across the S&P/ASX 200 Index (ASX: XJO).

Reaching an all-time high of $23.27 on Friday, investors are clearly excited about the company’s future direction.

Record output

Just last week, Fortescue released an investor and media day presentation highlighting its record first-quarter operating performance for FY21.

For the period ending 30 September, the company declared a shipment of 44.3 million tonnes of iron ore. This reflected a 5% lift on the previous corresponding period.

First quarter costs came in at $12.74 per wet metric tonne (wmt), which was pleasingly down 2% on the same quarter last year.

The mining outfit managed to achieve an average realised price of US$106 per dry metric tonne (dmt). 

Overall, Fortescue generated strong positive cash flow of US$1 billion to add to its coffers.

FY21 Guidance

Looking ahead, Fortescue has forecast shipping between 175 million to 180 million of iron ore for the 2021 financial year.

C1 costs (production costs such as mining and processing iron ore) are estimated to come in at around US$13 to US$13.50 per wmt when applying the assumed exchange rate of AUD$1 = US$0.70. Although, the current exchange rate currently sits at AUD$1 = US$0.75, so this will likely have a slight negative impact on production costs.

Capital expenditure is expected to be in the range of US$3 billion to US$3.4 billion. The increase over FY20’s $2 billion amount, will be mainly allocated towards the company’s Eliwana and Iron Bridge projects.

Iron ore spot price

Supporting the strength of the company’s revenue, and the Fortescue share price, is of course the surging iron ore spot price. For the first half of the year, iron ore was trading at under the US$100 per tonne mark. Just last week, however, the steel making ingredient has gone on to reach multi-year highs in excess of US$150 per tonne. This represents a 50% increase over the past 12 months alone.

Rising Chinese tensions

Amid the economic and political upheaval with China, iron ore has so far remained largely untouched. The same cannot be said for industries such as wine, barley, lamb, beef, lobster, timber and unofficially coal.

As Australia’s top export to China, iron ore is an extremely valuable commodity, fuelling the insatiable demand of Chinese steel mills. In 2019, China imported 1.04 billion tonnes of iron ore, including 660 million tonnes from Australia.

However, as no commodity is ever 100% immune from geopolitical headwinds, Fortescue has diversified its exports to other key markets. These include countries such as Japan, South Korea, India and the European Union.

About the Fortescue share price

The Fortescue share price has gone from strength to strength over the past 5 years, rising more than 1,200%. The company has also rewarded shareholders with dividends of $1.76 in the past year. That amount eclipses what investors paid for the shares themselves back in 2016 when the Fortescue share price hit a low of $1.44.

More recently, the Fortescue share price has further outperformed the broader market, gaining nearly 28% this month alone. While it’s anyone’s guess where the miner’s shares could be in 2021, Fortescue has undoubtedly been a top performer in 2020.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Fortescue (ASX:FMG) share price is up 28% in December appeared first on The Motley Fool Australia.

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