Fortescue Metals Group (FMG.AX) may be betting against the market but it’s got evidence to prove that investing in mining stocks might just pay off.
Fortescue’s Chief Executive Neville Power, talking to the ABC on Sunday, said that iron ore in the foreseeable future is not likely to fall below $100 per metric tonne, as many “experts” have been predicting. This news is sure to reignite the flames for some of Australia’s biggest iron ore producing companies.
After taking a beating on the S&P/ASX 200 (XJO.AX)(^AXJO) early last week, resource stocks should end higher before close this afternoon, as investors react to good commodity prices and overseas trading late last week. After rising 9.91% on Friday afternoon, Fortescue will be hoping for another good day on the market as the Dow Jones (^DJI), Nasdaq (^NDX) and FTSE100 (^FTSE) all closed higher on Friday.
In addition to international markets rising nicely, gold prices rose after a very heavy past couple of weeks, which affected some of our biggest gold mining stocks like Newcrest Mining (NCM.AX), dropping over 20% this past month. With the possibility of volatile iron ore prices in forthcoming years, BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX) have also seen poor market sentiment reflect negatively on their share prices.
However, Mr Power has reassured both the mining community and the market by announcing that he believes iron ore will likely remain at around $140 thanks to continued Chinese growth fuelling demand for the steelmaking ingredient. Mr Power added that he was “a bit perplexed” that the market reacted so poorly to the news that the Chinese economy only expanded by 7.7%, a figure that Fortescue says it expected.
Mr Power’s contention is supported by results, as Fortescue realised an average price of $131 a tonne for its ore in the three months through March, while the spot index price averaged about $148 a tonne. BHP and Rio, who are both dual-listed on the ASX and FTSE, saw positive gains in their European trading on Friday and this should be reflected in the domestic market today.
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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz owns shares in Rio Tinto.