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Why the Fortescue Metals Group Limited share price pushed higher today

The Fortescue Metals Group Limited (ASX: FMG) share price has been one of the best performers on the local market today.

In late morning trade the iron ore miner’s shares are up almost 3.5% to $5.26. This brings their year-to-date return to a solid 6.5%.

What happened?

This morning Fortescue announced its quarterly production results which revealed yet another drop in its cash production costs (C1).

According to the release, for the quarter ending December 31, Fortescue reported total shipments of 40.5 million tonnes of iron ore and C1 costs down to a record US$12.08 per wet metric tonne (wmt).

According to outgoing CEO Nev Power, these cash costs were achieved thanks to productivity and efficiency initiatives which have continued to reduce the cost base and offset higher strip ratios, exchange rates, and fuel prices

At the end of the quarter the company had cash on hand of US$0.9 billion following cash outflows in the quarter for the Solomon Power Station purchase, dividends, and the final FY 2017 tax payment. Gross debt decreased to US$4.2 billion during the period.

Should you invest?

While I would prefer to gain exposure to iron ore through a diversified miner like BHP Billiton Limited (ASX: BHP), I still think that Fortescue is a tempting option for investors at the current share price.

Especially with its low costs and management’s plans to mine higher grade iron ore. I believe this puts the company in a position to deliver another bumper profit result in FY 2018 and should allow it to pay out a generous dividend once again.

I’m not alone in this view either. Last month Credit Suisse slapped an outperform rating on its shares and a $5.75 price target. This implies potential upside of 9.3% for its share price over the next 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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