The Fortescue Metals Group Limited (ASX: FMG) share price has continued its strong run and is up a further 3% to $5.58 in morning trade.
This means the iron ore producer's shares have now rallied over 33% since the start of the year.
Why is the Fortescue share price on fire?
The main catalyst for this stellar gain has been a significant jump in iron ore prices this week following the Vale dam disaster in Brazil.
In response to the disaster, the mining giant intends to decommission 19 dams that are similar to the one that collapsed at the weekend, potentially leading to the loss of as much as 40 million tonnes of iron ore supply.
Supply disruption concerns meant that iron ore prices continued to rise overnight. According to Metal Bulletin, the benchmark 62% fines price lifted a further 4.9% to US$82.53 a tonne. This means it is trading at its highest level in almost two years.
Low grade 58% fines, which Fortescue is exposed to, was the strongest performer with a 6.8% gain to US$60.44 a tonne.
Importantly, this gain has left the discount between low grade ore and the benchmark 62% fines at its narrowest level in around two years.
What else happened?
In addition to this, Fortescue released its quarterly update this morning which revealed an increase in shipments, higher realised prices, and a reduction in costs.
Fortescue's shipments increased 6% to 42.5mt, bringing the total for the first half of FY 2019 to 82.7mt.
Its average realised price increased 7% during the quarter to US$48 per dmt and its C1 cash costs fell to US$13.02/wmt. The combination of this led to strong cash flows being generated during the quarter.
Should you invest?
If iron ore prices remain around these levels and the discount holds firm or narrows, then I think Fortescue could prove to be a good investment.
I would still choose BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) shares are ahead of it, but it isn't far behind them.
