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Will FORTESCUE METAL GRP (OTCMKTS:FSUMF) Expand Into New Commodities?

FORTESCUE METAL GRP (OTCMKTS:FSUMF) has mature plans to expand into new commodities, with Chairman Andrew Forrest stating that the company is considering the opportunities offered in six different commodity markets.

The perspective

 Forrest expressed at Iron Ore Miner’s Annual Meeting that as of now the company has all its eggs in one basket. There is a dire need for diversification so that the company has additional sources of revenue generation with a better risk appetite. However, he added that Fortescue will only expand if an opportunity could offer equal returns to its existing mines.

The review process

Unwilling to state what the six commodities markets can be, Forrest said that one of the segments under observation was oil and gas. It is one of the six commodity segments Fortescue review all the time. The company has plans both immature and mature in several different industries. The main problem as of now is iron-ore producers are dealing with almost 45% decline in the price of the commodity in this year. The slide forced it to touch five-year low of nearly $US76 a tonne. The declining price has put increased pressure on the company’s ability to get value from its operations. Even investors have deferred further investment in the commodity.

Diversification

Forrest, who is also the biggest shareholder in Fortescue, said that due to decline in commodities prices in last one year, the company thinks it as a good time for diversification. If a look is given to the resources sector including gas, uranium, oil, and copper, it is down, and so strength lies where weakness exists. It is their opportunities exist. The concern, however, is related to the sector, and not to diversification. Each metal segment has its unique set of challenges and difficulties. The companies need to focus on the strengths in business; weakness will automatically be wiped out.

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