Iron Ore – BHP, RIO & FMG

Spot iron ore prices have rallied in the past days on the news of a second catastrophic tailings dam failure at a Vale-owned mine in Brazil.

Exceptions of reduced supply impacting the market, has driven up short term spot prices. Although, Iron Ores prices have been on a steady climb since the November low.

Long-term Iron Ore price chart.

We remain cautious of a potential pullback in RIO, BHP and FMG following the run up in prices and Algo Engine sell conditions.

Our preference continues to be in the energy names with OSH and WPL our core exposures.

 

FMG Announces A $500 Million Buyback Plan

Overshadowed by the general market weakness, FMG has announced a $500 million on-market share buy back plan earlier this week.

Once completed it will be 4 – 5% earnings accretive by 2020.

Shares in FMG have risen over 6% since the announcement and we see the next significant price resistance level near the July 25th high at $4.60

 

Fortescue Metals Group

FMG Is A Buy Write Strategy

FMG is oversold relative to BHP and RIO.

Strong production numbers and improving low grade ore pricing discounts should flow through to better near-term share price performance.

We recommend adding a covered call option to enhance the cash flow.

The graph below displays the increase in Ore shipment from the Port Hedland port in WA.

FMG

 

Foretescue Is Nearing The Buy Zone

Since posting a high of $5.03 on May 15th, shares of FMG have dropped almost 10%, reaching a low of $4.53 in early trade today.

Much of the weakness has been focused on the tepid demand for Iron Ore from China, as well as, the widening spread between the higher grade ore and the lower grades of ore.

However, as profit margins contract for Chinese steel mills, we will likely see this spread contract to the benefit of low grade producers like FMG.

FMG is the 3rd largest Iron Ore producer in the world and, as a low cost producer,  is still profitable even in the lower grade market.

The company is scheduled to pay a 25 cent dividend on September 1st, which is 5.5% of the current share price on a stand alone basis.

Fortescue

 

FMG Firms On Expanding Export Numbers

Pilbara Ports Authority released its April shipping figures for its ports in the Pilbara region, which delivered a total of 59.1 million tons for the month, a seven per cent year-over-year increase.

Iron ore exports from Port Hedland remained consistent, up 1 per cent from April 2017 figures to 42.6 million tons.

These better-than-expected export numbers helped lift FMG over 4% for the week to reach a 4-month high of $4.95.

FMG is part of our ASX Top 50 portfolio and we see the next near-term target in the $5.50 area.

Fortescue Metals Group

 

FMG Continues To Look Attractive

Shares of FMG have posted as 6-week high at $4.75 as the Iron Ore miner reaffirmed FY18 shipments of 170 million metric tons.

It’s worth noting the Q4 is typically FMG’s strongest quarter for shipments.

This should continue this year as the company broadens its customer base to include low-grade ore users like India.

We still prefer the long side of FMG and have a medium-term price target of $5.35.

Fortescue Metals Group

Quarterly Reports In Focus This Week

There are two Quarterly production reports and an AGM this week which could offer trading opportunities for investors.

 OZL will hold its AGM on Tuesday,  and FMG and NCM will release their production reports on Tuesday and Thursday, respectfully.

Our ALGO engine is showing a buy signal for all three of these mining names and they are also part of our ASX Top 100 Model Portfolio.

The recent stability in Copper and Iron Ore has supported the shares prices of OZL and FMG, while the “range trading” in Gold has kept NCM active within the $19.60 to $20.30 price band.

For more information about investment opportunities in these names, call our office at 1-300-614-002.

Newcrest Mining

Fortescue Metals Group

Oz Minerals

FMG Is Good Value At Current Levels

Shares of FMG posted their first close above $4.50 since March 27th.

This time last year the share price was close to $6.50, which is about a 30% drop over the last 12 months

We forecast earnings of about 50 cents per share in 2018, a decrease of 34% on the previous 12 months. This puts the current share price at a P/E ratio of 7.6 based on 2018 earnings.

The company currently has a market cap of just over $13 billion and $5.5 billion in debt. The forecast for 2018  EBITDA  is around $6 billion, depending on stable Iron Ore prices.

These are just a sample of the key metrics which suggest FMG shares are undervalued and will offer investors good upside price performance over the medium-term.

Fortescue Metals Group

 

 

 

FMG Gets A Lift From Higher Ore Prices

Shares of FMG are firming back over $4.80 in early trade as Spot Iron Ore prices rose for the second consecutive day to reach $72.00.

Analysts have pointed to the end of China’s winter curbs on metal production as supporting demand for all grades of Iron Ore over the near-term.

Internal momentum indicators on the daily charts are improving and we see the next resistance level at $5.25 and support at $4.60.

FMG is part of our Top 50 Model portfolio and we suggest that investors can buy the stock at current levels for a move back into the $5.40 area over the medium-term.

Fortescue Metals group

 

 

 

 

ALGO UPDATE: Fortescue Is Holding Technical Support

Despite the 3% drop in Iron Ore prices overnight, shares of FMG have firmed to $4.83 in early trade.

Comments from commodity traders suggest that the recent dip in Iron Ore prices may be more of a seasonal cycle than a fundamental shift to lower demand.

The technical outlook has improved this week as the price action remains above the $4.60 consolidation area from mid-December, and internal momentum indicators are pointing higher.

FMG is part of our Top 50 Model portfolio and we suggest that investors can buy the stock at current levels for a move back into the $5.40 area over the medium-term.

Fortescue Metals