While the pain amongst investors in the resources sector is widespread today, few will be feeling it like Fortescue Metals Group’s (ASX: FMG) Andrew “Twiggy” Forrest.
The miner’s shares dropped as low as $4.85 earlier today, but have recovered slightly, to sit almost 10% down for the day – a move which has seen roughly $500 million wiped off the value of Forrest’s stake in the company. To make matters worse, his stake has plummeted more than $900 million in value in just 11 trading days, with the shares having fallen from over $6 on February 21.
While investors had entered 2014 with high hopes for the resources sector after years of underperformance, weak economic data emerging from China has given investors new reasons to doubt the sector’s prospects. Iron ore has fallen more than 2% to its lowest level in more than six months to US$114.20 a tonne, reflecting a fall of around 14% since the beginning of the year. If that wasn’t painful enough, analysts are becoming more and more bearish on the commodity, with some suggesting it will sink as low as US$80 a tonne in the near future.
Investors are cautious of Fortescue’s enormous debt load which has certainly impacted the shares’ performance today.
Fortescue wasn’t the only miner hit by the overnight fall and deteriorating investor confidence. Atlas Iron Limited (ASX: AGO) has plummeted 8.7%, while Arrium Limited (ASX: ARI) and BC Iron Limited (ASX: BCI) have lost 9.3% and 5.6% respectively. Even heavyweights BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) felt the pain (despite their lower break-even price), with their shares falling 3.7% and 5% respectively.
The enormous falls reflect the level of volatility and uncertainty in the mining sector. Although some investors will see this as an opportunity to buy shares at great discounts, I would stay away until the volatility subsides.