What: The share price of 'the third force' in Australian iron ore production Fortescue Metals Group Limited (ASX: FMG) jumped 10.6% yesterday to close Tuesday's trading session at $2.40.
It was a much needed boost to the miner's fortunes which has seen the stock trading at Global Financial crisis (GFC) lows and wiped billions of dollars off the fortune of founder Mr Andrew Forrest.
So What: For Forrest, yesterday's 10.6% rally boosted his on paper wealth by a healthy $238 million. Importantly, the surge in the share price came after news broke in the Australian Financial Review (AFR) that Fortescue had held discussions with major Chinese customers about potentially taking a stake in the group either through equity or debt or both.
It's arguably welcome news for the company as there are concerns amongst analysts that Fortescue needs to sure up its balance sheet in the face of the significant deterioration in the iron ore price which has put greater pressure on the company compared with larger, and lower cost peers BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
Now What: Forrest and Fortescue shareholders could be set for even more gains today with the iron ore price gaining a further 2.6% overnight to US$62.78.
However, investors would be well advised to take a longer-term view of the market and consider what the average iron ore price will be over the next decade or so. While the share price will bounce around daily due to factors such as economic data, news, commodity prices and exchange rates, the long-term driver of the share price for Fortescue will ultimately be its underlying cash flows.
