Iron ore price, page-40113

As the IO price goes through the downward part of the cycle, book value will play a more prominent role in FMG's valuation compared to earnings and dividend yield.

Book value is relevant as it is reflective of the replacement cost of a company, it wouldn't make sense for global capital to build a new mine when you can buy an existing world-class producer (lowest cost) for a similar cost to what it would take to establish a new, most likely higher cost mine.

Since 2015'ish, a lot has changed:

• FMG's book value per share has increased by 143% from $3.15 to $7.66 per share.
• Net Debt / Equity has declined from about 100% to -15% (cash now exceeds debt).

As such, historical comparisons are not helpful as FMG has transitioned from a company with significant financial leverage to one that now has no net debt. Considering FMG's strong financial position, I believe BHP and RIO are a fair comparison for appropriate ratios throughout the cycle.

BHP and RIO have averaged a Price/Book ratio of about 3x and 2.75x respectively over the last 2 decades with the Price/Book ratio very rarely dropping below 2x.

FMG currently trades at 1.84x book value which is notably low.

Due to this, FMG's price will probably start to decouple from lower IO prices as at 1.84x book value, the market might as well start looking past the next couple of years and to the next cycle.