Could this help Fortescue (ASX:FMG) mitigate the risks of falling iron ore prices?

Fortescue has a plan to achieve higher iron ore prices.

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Happy man in high vis vest and hard hat holds his arms up with fists clenched celebrating the rising Fortescue share price

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The Fortescue Metals Group Limited (ASX: FMG) share price is currently up around 2%. This is on the day on a high level of ASX share market volatility relating to the Omicron COVID-19 variant.

Despite the volatility, there is some company-specific news about Fortescue today.

Fortescue links up with a digital auction platform

According to reporting by the Australian Financial Review, the large iron ore miner is planning to sell some of its iron ore through the GLX Connect platform, which is a commodity trading service.

This is the same platform that has enabled Pilbara Minerals Ltd (ASX: PLS) to achieve some very high prices for sale of its lithium.

If the deal goes ahead, then Fortescue will also become a shareholder in GLX Digital, the owner of the auction platform. The iron ore miner will initially get less than 1% of the shares, but could get more as it conducts auctions on the platform.

One of the attractions of GLX Connect is that it empowers the seller by allowing it to design and manage its own auction terms. It also allows the seller to “manage counter-party risk by choosing who is invited to participate in auctions.”

The participants in the auction are supposedly attracted to the precise terms, including the volume and delivery schedules.

The AFR reported that access to the platform will cost Fortescue US$100,000 a year for three years, though the deal hasn’t been signed yet.

However, at least to start with, Fortescue is only going to sell a small amount on the platform.

Time will tell whether this has an impact on the Fortescue share price over the longer-term.

A spokesman for the iron ore miner said to the AFR:

Fortescue is exploring the potential to trial new platforms to complement our existing sales and marketing channels. The majority of Fortescue’s products will continue to be sold via existing contractual seaborne arrangements, as well as our portside sales entity FMG Trading Shanghai.

Other initiatives to get a better price

It was also reported that Fortescue is now selling at least six different iron ore products, with one of those being a higher grade offering. When the Iron Bridge project is finished, that is expected to lead to another, higher quality product.

The AFR reported that Fortescue is working at Chinese ports to sell smaller volumes of iron ore to new, smaller customers that may not want to buy the same volume as Chinese steel mills. Some of these deals are being done in Chinese currency, rather than US dollars.

Is the Fortescue share price good value?

Opinions are mixed on the business. One of the latest opinions comes from Credit Suisse, which is ‘neutral’ on the business but the price target is $13.50 – approximately 20% lower than today. The broker is expecting the iron ore price to hit a low in December.

Then there’s Morgan Stanley which rates Fortescue as a sell/underweight with a price target of just $12.50 on concerns of a lower iron ore price and a bigger discount for Fortescue’s lower grade iron.

One of the most positive brokers about the business is Macquarie Group Ltd (ASX: MQG) with a buy/outperform rating and a price target of $21.

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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 recommended Macquarie Group Limited. 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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