Buy Fortescue Metals Group Ltd (FSUMF.PK)

12/19/2007 3:54 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The death of the deal that would have given Chinalco (Aluminum Corporation of China (ACH) a stake in cash-strapped Rio Tinto (RTP), the second largest iron ore exporter in the world, in exchange for $19.5 billion in cash, was a terrible setback in China’s drive to secure the raw materials that its factories need—and really good news for Fortescue Metals Group (FSUMF). At the height of the global financial panic, investors were fleeing the stock because the company needed capital that it didn’t have to meet its plans to expand production to 200 million metric tons a year by 2012 from the current 50 million tons. Now, however, the company is suddenly the darling of Chinese investors.  At the end of April the Australian and Chinese governments both signed off on a deal that would give Hunan Valin, China’s ninth largest steel company, a 17% stake in Fortescue Metals for $462 million and a seat on the Fortescue board for Hunan Valin chairman Li Xiaowei. As of July 1, I’m setting a target price of $6 a share by March 2010. (Full disclosure: I own shares of Fortescue Metals in my personal portfolio.)

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