Shares of Fortescue Metals Group Limited (ASX: FMG) have fallen 3.9% today to trade at $2.23, despte a 1.3% gain for the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) so far for the day. That's up from an intraday low of $2.21, and down from yesterday's $2.32 closing price.
Fortescue's shares have shown considerable strength in recent weeks as a result of the stronger iron ore price which recently topped US$65 a tonne. Since that time however, the commodity's price has been stuck in a gradual decline, falling another 2.1% overnight to US$62.91 a tonne, according to data provided by the Metal Bulletin.
Fortescue is Australia's third largest iron ore miner, behind BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), and the fourth largest in the world. However, it operates at a considerably higher cost per tonne than its larger rivals and is thus more susceptible to negative movements in the commodity's price.
Its high level of debt is another major concern for investors. While Fortescue is working towards lowering its production costs, a lower iron ore price makes it increasingly difficult for the miner to repay that debt which could threaten its existence in the coming years. Notably, a huge portion of the amount owing will fall due in 2019.
The problem is, while Fortescue is likely operating at a profit at today's iron ore price, most analysts believe the commodity's recent rally is unsustainable which could threaten the miner's margins in the future. Given the weakness in the iron ore price over the last few sessions, investors are likely becoming cautious and exiting their positions in Fortescue.
Should you buy?
Although it might look 'cheap' at today's price of $2.23, investors would be wise to avoid the lure of Fortescue. The miner is extremely reliant on a high iron ore price to grow its earnings and the facts (i.e. falling demand and rising supply) suggest the price will only decrease over the coming years. 'Foolish' investors would thus be wise to consider investing their hard-earned dollars elsewhere.
