Is the Fortescue share price under threat from a potential multi-million dollar earnings hit?

The Fortescue Metals Group Limited (ASX: FMG) share price is showing little signs of stress even as the miner faces compensation claims that could cost it hundreds of millions.

The Fortescue Metals Group Limited (ASX: FMG) share price is showing little signs of stress even as the miner faces compensation claims that could cost it hundreds of millions.

But investors aren't perturbed by the news that the High Court denied the company special leave to appeal a Federal Court ruling.

The Fortescue share price is a rare riser on the S&P/ASX 200 Index (Index:^AXJO). The stock inched up 0.5% to $13.59 during lunch time trade while the top 200 benchmark shed 0.9% of its value.

The performance of the other major miners was mixed. The BHP Group Ltd (ASX: BHP) share price slipped 0.3% to $35.05 while the Rio Tinto Limited (ASX: RIO) share price added 0.6% to $94.16 at the time of writing.

What the court ruling means

The High Court defeat means that the earlier ruling that found Fortescue had built the Solomon iron ore mining hub without the permission of traditional owners will stick.

The traditional owners are represented by the Yindjibarndi Aboriginal Corporation (YAC) and the YAC is now expected to launch a multi-million-dollar compensation claim against Fortescue, reported the Australian Financial Review.

Big compensation bill

The court gave YAC exclusive native title rights over 2,700 square kilometres of iron ore-rich land in Western Australia's Pilbara region.

The AFR reported that some in the community believe the size of claim should be based on a percentage of Fortescue's total revenue of about $70 billion over the past decade.

You can see how even a small percentage can work out to be a big number.

Why investors aren't worried

However, investors may be brushing this new development aside as it's too early to quantify the impact of YAC's claim.

The process might also take years to resolve if it's dragged through the court system again.

In any case, the market may have already factored in some level of compensation that Fortescue has to cough up. The miner was backing the breakaway Wirlu-murra Yindjibarndi Aboriginal Corporation.

Further, the miner has previously downplayed the significance of any payout and said that the case does not affect its mining tenure rights or current operations.

Foolish takeaway

The Fortescue share price outperformed right through the COVID-19 market meltdown as its earnings and generous dividend handouts are resilient to the deep recession.

Such defensive qualities are hard to find in the current environment. This explains why the stock jumped 28% since the start of the year when the ASX 200 fell 13%.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. 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 Scott Phillips.

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