There are a lot of different things to consider when it comes to the Fortescue Metals Group Limited (ASX: FMG) share price.
What is Fortescue?
Fortescue is one of the largest iron ore miners in the world. But it’s actually more than 100 years younger than the other two big ASX players of BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
It has a number of different operations. That includes the Chichester and Solomon mining hubs. It’s also developing the Western Hub, home to the new Eliwana mine. The Iron Bridge magnetite project was an industry leader in cost and energy efficiency. It will be one of the highest grade magnetite projects in the world, according to management.
It’s currently doing exploration activities in New South Wales and South Australia, as well as in Ecuador and Argentina, and preliminary exploration activities on tenements that are in application in Colombia, Peru, Portugal and Kazakhstan. It’s looking for copper, gold and lithium.
But what are some of the things that investors are thinking about the Fortescue share price right now?
The iron ore price
Commodity prices have a major impact on the profit that resource companies can generate. This in turn can have a sizeable effect on the Fortescue share price.
Higher iron ore prices is leading to bigger profit for Fortescue.
In the FY21 half-year result, Fortescue saw its realised price for iron ore increase by 42% from US$80.36 per dry metric tonne (dmt) to US$114.02 per dmt. This helped revenue rise 44% to US$9.3 billion and underlying net profit after tax (NPAT) grew 66% to US$4.1 billion.
In the third quarter of FY21, it saw average revenue of US$143 per dmt, which was an increase of 17% from the previous quarter.
Fortescue is committed to paying out a large amount of its profit to shareholders of dividends.
The large iron ore miner has said that it’s going to pay around 80% of its net profit each year to investors. The other 20% is going to be used to fund future growth. It will invest 10% to fund renewable energy growth through Fortescue Future Industries (FFI), with another 10% to fund other resource growth opportunities.
Dividends can make up a large part of potential shareholder returns.
The broker Credit Suisse thinks that Fortescue will pay an annual dividend of $3.61 per share in FY21. That translates to a fully franked dividend yield of 14.3%.
Then, in FY22, it’s expected to pay an annual dividend of $3.85 per share. That suggests a fully franked dividend yield of 15.3%.
Fortescue Future Industries
FFI has been established to identify and pursue renewable energy and green hydrogen projects both in Australia and globally have been identified.
Fortescue wants to leverage its track record of identifying, assessing and developing large-scale resource and infrastructure opportunities. It’s going to bring its capabilities of adopting innovation and technology to ensure future green energy projects to position Fortescue at the forefront of the emerging industry.
It has said that the Government of the Democratic Republic of Congo has invited interested corporations and governments to contact FFI if they have investment or service interest in the Grand Inga Hydroelectric projects including Matadi and Pioka projects.
FFI recently said it’s delivering on some of its targets.
For example, it has achieved successful combustion of ammonia in a locomotive fuel, with a pathway to achieve renewable green fuel. It has also completed the design and construction of a combustion testing device for large marine (ship) engines.
Fortescue share price valuation
At the current Fortescue share price, it’s valued at under 6x FY21’s estimated earnings according to Credit Suisse.