Why is the Fortescue Mining (FMG) share price rebounding?

Shares in the iron ore miner have jumped 49% over the last 6 months, although they've fallen on tougher times lately.

Shares in iron ore major Fortescue Metals Group (ASX: FMG) are the best performing among its mining peers and also among the top traded shares on the ASX on Thursday, with the share being up 4.4% to $20.99 at the time of writing.

Its momentum also seemed to have rubbed off on its big mining rivals, with BHP (ASX: BHP) up 3% and Rio Tinto (ASX: RIO) rising 2.5%.

What is pushing up the FMG stock price?

Some of the gains among the top miners can be attributed to the fact that the iron ore price seems to have stabilised around US$150 a tonne after days of sharp decline on fears of escalating lockdowns in the COVID-hit Chinese market.

But the latest jump in Fortescue shares comes after the world's fourth biggest iron ore miner outlined its production report for the March quarter on Thursday, which had some pretty encouraging numbers.

The company shipped 46.5 million tonnes (mt) of iron ore in the March quarter, a hefty 10% increase from a year ago, despite having previously warned that rising cost pressures and labour shortages in Western Australia could risk production.

That came ahead of analyst estimates and also resulted in shipments for the first 9 months of FY 2022 hitting a record high of 139.5 mt. It has allowed the company to lift its forecast for full-year shipments to between 185mt and 188mt, compared to the previous guidance of 180mt to 185mt.

Fortescue also commanded higher prices through the period, realising an average price of US$99.52 per dry metric tonne during the quarter. Some of this was offset by higher costs, as inflation across key inputs lifted C1 cash costs by 3% during the quarter to US$15.78 per tonne.

Cost pressures

Despite the encouraging March quarter numbers, Fortescue is facing rising cost pressures in different directions.

The miner has raised its annual costs guidance to US$15.75–US$16.00 per wet metric tonne from US$15.00–US$15.50 previously, reflecting higher crude oil price assumptions, supply chain disruptions exacerbated by the pandemic, sustained high inflation, and a prolonged Russia-Ukraine war. Bigger rivals BHP and Rio have also warned of similar risks.

At the same time, the miner has had to increase the capital expenditure estimate for its under-development Iron Bridge Magnetite project in Western Australia. The estimates construction cost is now expected to be between US$3.6 billion to US$3.8 billion, much higher than the originally estimated US$2.6 billion.

First production at the project has also been pushed back by 3 months to March 2023.

Still, outgoing CEO Elizabeth Gaines sounded a positive note on the company's performance:

"Against the backdrop of a record performance in our iron ore business and our focus on decarbonisation and green energy, Fortescue is well placed to finish the financial year strongly, as we continue to meet demand from our customers and deliver on our strategic priorities."

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