What's happening: Shares of Fortescue Metals Group Limited (ASX: FMG) have picked up where they left off, rallying a further 4.93% (11 cents) this morning to add to yesterday's 9.3% (19 cent) gain. They're now trading at $2.34 after sinking as low as $1.92 on Tuesday.
Why it's happening: Fortescue's shares have plunged in value over the last 12 months as a direct result of the crashing iron ore price, coupled with fears of the miner's ability to repay its debt obligations. On Thursday, Fortescue appeased some of those concerns in its quarterly production report.
While the miner shipped 41.1 million tonnes of iron ore in the quarter, beating analyst expectations, it was the cost savings recognised by Fortescue that impressed the market the most. Aided by a falling Australian dollar and falling oil prices, Fortescue's cost of production fell by 11% (compared to the September quarter), putting it in a better position to cope with the lower price environment. In addition, it repaid US$500 million of its debt, easing its net debt position.
Despite the strength of the report however, Fortescue is by no means out of the woods just yet. While it will continue to focus on operational efficiency improvements to better its competitive position, investors need to be aware that iron ore is still likely to fall further in price which could see Fortescue's shares retreat from their most recent levels. Until the high level of uncertainty subsides, investors should instead focus on some of the market's seemingly less risky opportunities.
