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The Fortescue Metals share price just hit a new record high

The Fortescue Metals Group Limited (ASX: FMG) share price has been a positive performer on Monday.

At one stage today the iron ore producer’s shares were up 3% to a new record high of $17.92.

When the Fortescue share price reached that level, it meant it was up a remarkable 126% since this time last year.

Why is the Fortescue share price at a record high?

Investors have been buying Fortescue shares on Monday after the iron ore price recorded a solid gain last week.

According to CommSec, the spot price of the steelmaking ingredient rose by 1.7% last week to end it at US$111.45 a tonne.

This is great news for Fortescue, given its ultra-low cash costs per tonne. In its recent fourth quarter update, Fortescue revealed that it expects its C1 cost to be US$12.94 per wet metric tonne in FY 2021.

And while Fortescue’s iron ore doesn’t sell for the benchmark spot price because of its lower grade, it still stands to make bumper profits on each tonne sold.

In FY 2020 it was able to command an average realised selling price of US$81 per dry metric tonne. This bodes well for earnings and dividends in the year ahead.

What else is driving the Fortescue share price higher?

Also supporting the Fortescue share price has been a broker note out of Macquarie.

Last Friday, analysts at the investment bank retained their outperform rating and lifted their price target on the company’s shares to $18.00.

Macquarie was impressed with its better than expected fourth quarter and also its guidance for the year ahead.

The broker also notes that its medium-term outlook looks positive and should be supported by the Eliwana operation. It was happy to see that the development is on track and expects it to improve its product mix in the future.

The Eliwana project underpins the introduction of a 60.1% iron grade product, West Pilbara Fines, and will maintain Fortescue’s low cost status. Management notes that it provides greater flexibility to capitalise on market dynamics while maintaining its overall production rate of a minimum 170mtpa over 20 years.

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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 Scott Phillips.

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