Here is a prime example of a company who’s share price is reacting to nothing but hype. For those unaware of what Fortescue is then here is a brief overview. Fortescue Metals Group Limited (FMG, formerly Allied Mining & Processing Limited) is a minerals exploration and development company with interests primarily in iron ore in Western Australia. The company is mainly focused on the development of the Pilbara Iron Ore Project.

Here are some facts about this company that is responsible for the ‘all of a sudden’ Australia’s richest man Andrew “Twiggy” Forrest.

Their share price has risen as high as $60.20 yet they have turned a profit only once in the past 10 years.

The company will ship its first ore load next week.

Long term debt is 2.6 billion dollars while shareholder equity is 497million dollars. That’s a fairly large loan these kids have to pay, especially with these increasing interest rates tsk tsk.

The current years forecast is for a loss of -836 million dollars.

The 2009 estimated forecast is for a profit of 1.03 billion dollars.

If these two years come together ‘as estimated’ we are set for a return of 194 million dollars for the two year period. Based on $10 share price you are looking a massive earnings yield of 0.7%. hmmmm that doesn’t sound that good from here but someone out there thinks this is awesome. I find it amazing that the market at any stage thought the company was worth 60 something dollars per share. Anyone who tries to tell you that the company is worth that is just plain stupid. Or on crack, as I suspect a large percentage of the financial investment corporate world (or helpers) is.

Even at $10 it seems risky given the possible events that can occur between now and an ‘estimated’ return.

Cool your heels lads, a more stable buy opportunity will arise down the track. In the mean time Twiggy is either going to sell all he can and secure his billions or hope he can live on the few million dollars worth of shares he has already sold.

In other news Bondy is BACK!!!