The Fortescue Metals Group Limited (ASX: FMG) share price underperformed on Thursday following the release of its third quarter update.
The iron ore producer's shares fell 0.2% to $22.58.
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What happened in the third quarter?
For the three months ended 31 March, Fortescue shipped 42.3 million tonnes of iron ore. While this was flat on the prior corresponding period, it remains on track to achieve its shipments guidance in FY 2021.
The mining giant averaged US$143 per dry metric tonne, which was up 17% on the second quarter of FY 2021. It also represents revenue realisation of 86% of the average Platts 62% CFR Index.
And although its C1 costs increase quarter on quarter by 16% to US$14.90 per wet metric tonne, the company remains on track to achieve its costs guidance.
Though, one thing that is not on target is its capital expenditure. Fortescue has lifted it by up to US$300 million for the year.
Is the Fortescue share price in the buy zone?
According to a note out of Goldman Sachs, its analysts don't see value in the Fortescue share price at the current level.
It commented: "FMG delivered a weaker than expected March Q with; (1) iron ore price realisations drifting down 5% QoQ to 86% vs. the Index (below GSe at 88%), despite some modest provisional pricing tailwinds and generally low and supportive steel mill margins for low grade Fe up until late Feb, and (2) FY21 capex guidance lifted by c. 10% to US$3.5-3.7bn due to further escalation on the Iron Bridge project during the project review, spend of renewables projects and FX strength. We model US$3.7bn of capex for Iron Bridge vs. last company guidance of up to US$3bn (100% basis). Unit costs increased 16% QoQ to US$14.9/wmt (the highest in around 5-yrs), and shipments of 42.3Mt of iron ore were down 8% QoQ but flat YoY."
Valuation concerns
Goldman also has concerns over its valuation, noting that the Fortescue share price is trading at 1.6x net asset value (NAV).
This compares to a much more reasonable 1x NAV for both BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO)
In light of this, the broker has retained its sell rating and cut its price target to $18.30. Based on the current Fortescue share price, this implies potential downside of 19% over the next 12 months.
