Fortescue Ltd (ASX: FMG) shares have suffered from a major sell-off in recent weeks. They are down 16% since 19 February 2025, and the ASX mining share has fallen much further in the past 12 months, as the chart below shows.
The ASX iron ore share isn't the only ASX business to suffer a double-digit decline in the past month, but the fall comes on top of declines going back to the start of 2024.
Investors may be wondering whether the commodity business is an opportunity at this much lower valuation. I'll give my thoughts below.
Negatives about the mining stock
It's understandable why the ASX share market has been shaken up recently – the US has put tariffs on some of its closest allies, as well as China, leading to most of the targeted countries putting tariffs on some US products in return. That's creating uncertainty and may potentially hamper global growth and profitability.
China is by far the biggest buyer of iron ore, so what happens with its economy is very important for Fortescue and the wider iron ore sector.
The iron ore price has dipped to just over US$100 per tonne, which has hurt Fortescue's profitability. Its production costs don't change much each month, so a reduction in revenue dollars largely translates into a big reduction in net profit too.
We saw that effect in the FY25 half-year result, with Fortescue's average revenue per tonne of iron ore falling 21% year over year to US$85.24 and the attributable net profit sinking 53% to US$1.55 billion. This also meant the interim dividend was reduced by 54% to AU 50 cents per Fortescue share.
The final thing I'll point out is that the outlook for Fortescue's green energy division has also reduced with the US moving away from its green efforts under the new Trump administration.
Positives about Fortescue shares
While the share price decline is painful for existing shareholders, it opens up an opportunity to invest in the ASX mining share at a cheaper price. The Fortescue share price hasn't spent much time at the current level over the past four years.
It's true that the iron ore price isn't as high as it was at the start of last year. However, if it remains above US$100 per tonne for most of 2025, then Fortescue can continue to make solid profits and pay a decent dividend.
According to UBS forecasts, the Fortescue share price is now trading at just 10x FY25's estimated earnings, with a possible grossed-up dividend yield of 9%, including franking credits.
The outlook for the iron ore price may improve in the near term. According to Trading Economics, there are expectations that China will launch additional stimulus (and help offset tariffs). Trading Economics also notes that Chinese steelmakers have increased production during the "peak construction season", lifting demand for iron ore.
Overall, I think Fortescue shares look cheap, particularly for the shorter term. In the longer term (the rest of the decade), it depends on how much additional iron ore supply is added to the global market from Africa, Australia, and South America. If the supply headwinds are strong, the impact on the iron ore price could be too much for Fortescue to achieve high levels of profit. I'll call Fortescue shares a potential opportunity, but not one to hold forever (if we're trying to beat the market return).
