Where next as the FMG share price flirts with all-time highs?

The conundrum that is the Fortescue Metals Group (ASX: FMG) share price has continued this week.

Even as FMG traded almost a full percentage point lower today – at $9.735 per share – it is but a hint from the company’s 52-week share price high of $9.880.

Yet with the iron ore price currently sitting at US$84.35 per tonne – FMG’s bullish price action remains an interesting case. One thinks, after all, that a pure-play iron ore miner such as FMG would trade with relatively continuity to the commodity to which it is centrally involved.

This is not the case, apparently. Iron ore prices are down 6.6% in the last month and down 31.5% since their July peak: yet FMG’s share price still remains at all-time highs.

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The analyst view: where next?

The above is a fact that hasn’t evaded analysts, mind you.

Citibank itself cited the widening disparity between iron ore prices and FMG’s share price action as a potential problem for the pure-play miner. Peaking iron ore prices and peak Chinese steel output potentially further compounds this issue.

FMG’s potential dividend is the final piece of this bearish puzzle, says Citibank. With the investment bank noting that a large dividend payment around the US$0.96 per share mark in FY20 – equating to a dividend yield of 14.8% – could result in a significant ex-dividend share price reversal.

In saying that, Citibank expects this yield to moderate significantly in FY21 and FY22 – as potentially weaker iron ore prices lead to weaker top and bottom-line figures.

For reference, FMG paid a total of $1.14 per share in dividends during FY19.

In line with all this, Citibank currently has a neutral rating and a bearish share price target of $8.50 on FMG.

FMG share price: a good start to FY20

Though not a price sensitive announcement, the company today released a Resource Technology Showcase Presentation that focused on how technology and innovation has been driving growth at Fortescue.

Overall, the miner noted that FY19 had proven to be a record year, with FMG shipping 167.7Mt of iron ore, as well as bringing in US$6.0bn in underlying earnings (EBITDA) and US$3.2bn in profits (NPAT).

FY20 has started with comparable strength: FMG has kept its costs down, reduced its debt levels and currently has US$3.4bn of cash on hand. The resource company also shipped 42.2Mt of iron ore during Q1 of FY20.

Yet even as iron ore prices have remained volatile, one of the company’s most important metrics – revenue per dry metric tonne (dmt) has remained stable. In the first quarter of 2020 FMG realised revenues of US$85 per (dmt), slightly down from the prior quarter’s revenue of US$92 per (dmt).

With the current state of the iron ore market though, one wonders where this metric will end up next quarter.