Shares of Fortescue Metals Group Limited (ASX: FMG) have rallied almost 5.6% today after having hit a fresh multi-year low during yesterday's session. Now trading at $1.895, the stock hit a low of $1.79 on Tuesday – a price which it has not seen since early 2009.
So What: Fortescue's shares have been stuck in a downward spiral as a result of iron ore's spectacular crash since the beginning of 2014. Prior to today, the shares had lost more than 68% of their value in the space of 12 months with numerous analysts having downgraded their forecasts for the stock.
With iron ore prices having lost nearly one quarter of their value in the space of just five weeks (and 65% since January 2014), last night's 2% recovery in the price came as a small relief for investors in Australia's third largest iron ore miner. The commodity is now fetching just over US$48 a tonne.
Now What: Unfortunately, it's likely that Fortescue is still operating at a loss at that price. Although it's sitting on a large pile of cash which can help it weather the storm in the near-term, its balance sheet is also plagued by US$8.8 billion worth of debt, much of which will become due between 2017 and 2019.
Unless iron ore can recover in the near future (a scenario that is becoming increasingly unlikely as companies such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) continue to ramp up their production rates) Fortescue's outlook is looking bleak. As such, investors would be well advised to steer clear.
