The spectacular rise in Fortescue Metals Group’s share price since chief executive Andrew Forrest took the reins has made the iron ore developer the top performing Western Australian stock over the past five years.
The spectacular rise in Fortescue Metals Group’s share price since chief executive Andrew Forrest took the reins has made the iron ore developer the top performing Western Australian stock over the past five years.
Like many other high-flying stocks, FMG’s share price has tumbled sharply over the past three months, but long-term investors are still way ahead.
The company’s share price has risen from less than 10 cents per share in June 2002, when it was known as Allied Mining & Processing Ltd, to $33.80 at the end of June 2007.
Over that period it delivered a total shareholder return of a staggering 38,156 per cent.
Loyal shareholders would have been even happier when the stock briefly hit an all-time high of $41.75 in early June, and they should still be sitting very comfortably even though the stock has slipped to less than $29 currently.
Under its original management team, led by Allied Gold Ltd chairman Mark Caruso, the company spent about six years pursuing iron ore development opportunities in the Pilbara.
The turning point in its fortunes came in April 2003 when Mr Forrest agreed to take the reins and immediately unveiled ambitious plans to become a major player in the industry.
Since then FMG has experienced more dramas and excitement than most companies experience in a lifetime.
To the surprise of many skeptics, who pointed to Mr Forrest’s chequered track record at nickel miner Anaconda Nickel Ltd (now Minara Resources Ltd), FMG has raised nearly $4 billion from investors, and is well on the way to shipping iron ore to its customers in China and elsewhere in May 2008.
Despite being in the midst of a massive construction phase, FMG has already started planning the expansion of its project.
Its initial production target was 45 million tonnes per year.
In mid-July it raised $504 million - at a price of $36 per share – to hasten its expansion plans.
“This raising will allow Fortescue to fully equity finance the optimisation of its current project, which will see a faster ramp up in production and an increase in capacity to 55 million tonnes per annum,” executive director Graeme Rowley said.
Looking further ahead, the company has announced it is studying options to expand output to 200 million tonnes per year, which would rival the Pilbara operations of mining giants BHP Billiton Ltd and Rio Tinto Ltd.
Notably, the $504 million capital raising was managed by US investment bank JP Morgan, with Australian firm Southern Cross Equities acting as joint lead manager.
Southern Cross is the only Australian broking firm to research FMG and has been a big supporter of the stock.
Other Australian brokers, and most Australian institutions, have steered clear of the stock, meaning they have missed out on one of the most spectacular investment opportunities of the past decade.
While FMG was often dismissed as a speculative ‘wild west’ stock, it has recently been included in the S&P/ASX100 index, which is the main benchmark for institutional investors targeting blue chip stocks.
The company noted at the time that it was the 33rd largest stock listed on the Australian Securities Exchange.
Another iron ore stock that has delivered high returns over the past five years was Sphere Investments Ltd, which has a 50.1 per cent stake in a giant iron ore project in Mauritania in western Africa.
Sphere recently signed a deal with entities from Saudi Arabia and Qatar, which have agreed to provide the first $A625 million in equity finance for the project, which has a total cost of $A1.88 billion.
Sphere’s stock was trading at $3.60 on June 29, compared with a 12-month high of $4.02 and a current price of about $3.30.