4 reasons why the Fortescue (ASX:FMG) share price could still be attractive

A few factors could still make the Fortescue share price seem attractive.

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Female miner standing next to a haul truck in a large mining operation.

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The Fortescue Metals Group Limited (ASX: FMG) share price may still be attractive despite the miner falling by 7.5% over the last week.

Indeed, a lower price may actually offer better value for investors.

The iron ore price has taken a bit of a dive over the last couple of weeks.

But there is more to think about the iron ore giant than simply a lower share price.

The Fortescue Metals share price is currently rated as a buy by the brokers Macquarie Group Ltd (ASX: MQG) and Ord Minnett.

Here are four reasons why investors may still be attracted to Fortescue:

Exploring for other commodities

At the moment, Fortescue generates a huge amount of profit from its iron ore.

But other miners, such as BHP Group Ltd (ASX: BHP) and Mineral Resources Limited (ASX: MIN), have shown that a commodity diversification strategy can lower that risk of depending on the price of one resource.

Fortescue is also looking for other resources to mine. The miner states:

Through our world class exploration capability together with our business development and projects focus, we are driving future growth, targeting the early stage exploration of commodities that support decarbonisation and the electrification of the transport sector.

We are undertaking 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, prospective for copper, gold and lithium.

New iron ore operations

But iron ore is still a major focus for Fortescue. There are two elements to Fortescue’s iron ore revenue – the price per tonne and how many tonnes it produces.

Eliwana is the newest Fortescue mine. The company is developing the ‘Western Hub’ in the Pilbara region, which includes significant amounts of high iron content. Eliwana was commissioned in December 2020, which Fortescue says is integral to its supply chain and maintenance of its low-cost status, providing greater flexibility to capitalise on market dynamics. This could help support the Fortescue Metals share price.

It’s also working on the ‘Iron Bridge Magnetite Project’, which is costing a few billion dollars to develop. It will deliver 22mt per annum of high grade product. Fortescue says that the process design, including the use of a dry crushing and grinding circuit, is “innovative” and “will deliver globally competitive capital intensity and operating costs”.

A big dividend

Fortescue is still expected to pay large dividends over the next year or so. Ord Minnett is expecting Fortescue’s annual FY21 dividend to amount to a grossed-up dividend yield of around 28% at the current Fortescue Metals share price.

The FY22 grossed-up dividend yield is forecast by Ord Minnett to be around 27.5%.

Some brokers have smaller dividend forecasts for FY21 and FY22, but there are still expectations for large dividends from the miner over the next year or so, which analysts are taking into account.

The company is looking to pay a dividend payout ratio of around 80% to shareholders.

Fortescue Future Industries (FFI)

Fortescue says that FFI is the 100% renewable green energy and industry division of the business. It’s establishing a global portfolio of renewable green hydrogen and green ammonia operations that will position FFI at the forefront of a global renewable hydrogen industry.

It is working on a number of areas that could help its own business become greener and unlock new earnings streams. Green hydrogen, green steel, green haulage tracks, green ships and green trains are just some of the areas that FFI is working on.

Fortescue has committed around 10% of its net profit to invest into FFI initiatives.

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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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