THE troubled Fortescue Metals Group is hostage to the iron ore price and ''in the lap of the gods,'' according to MineLife analyst Gavin Wendt, who tipped yesterday the company could be forced to sell assets including two more power stations, three airports, 11,000 accommodation units and $2.5 billion worth of mining equipment.
Mr Wendt said Fortescue, which was placed in a trading halt on Friday as it sought relief from loan covenants, had $9.1 billion in debts and a market value of $9.3 billion. Fortescue would not comment yesterday before a resumption of trade expected tomorrow.
Fortescue faced a problem of its own making as it had ''taken on massive levels of debt to try to compete with the likes of BHP and Rio Tinto'', he said. ''These companies operate better assets, produce product at a much lower cost and paid off their operations decades ago.
''Iron ore is a bulk commodity, which means that it's typically a low-margin business, where you have to move the stuff in big volumes to generate a return. Infrastructure expenditure is sizeable.
''High capex, low-margin, big volume, long-term payback - are not typically the characteristics that small, independent players look for in a business. Instead, bulk commodities are the domain of mining heavyweights.''
Citing UBS analysis, Mr Wendt said Fortescue was ''not achieving anywhere near the current iron ore spot price''. That $US93 price a tonne would translate into $66 a tonne to Fortescue, which could be compared to their cost base of $57 a tonne after payment of government and other royalties.
He predicted the iron ore price would recover to $US120 a tonne or higher from later this year, particularly as low prices cause uneconomic domestic Chinese iron ore suppliers to shut mines.
On the ABC's Inside Business yesterday Tom Elliott, the chief investment officer of Beulah Capital, asked why Fortescue paid a dividend only weeks ago and was now in talks with its bankers. ''It seems to be the company is thrashing about at the moment. It doesn't really quite know what the future holds.''
Also on the program Giselle Roux, chief investment officer of J. B. Were, said the lesson of the financial crisis was not to be leveraged into cyclical industries, yet ''here we are exactly leveraged into what most people would have to believe will remain a cyclical industry''.
Mr Elliott said hedge funds were starting to target Fortescue because its founder, Andrew Forrest, who owns a third of the company, had borrowed to buy more shares.