Fortescue Metals Group Ltd (FMG), a large Australian mining company, recently issued 40 million ordinary shares to a Saudi wealth fund by way of a private placement. The shares were issued at a price of about 4% below prevailing market price. The capital raising at A$7 per share will cover about 15% of the cost of constructing the Eliwani Mine and Rail project described below.

Note that FMG is a "pure-play" iron ore miner meaning it mines no other resources or minerals. This is a completely different type of mining company than a diversified miner like BHP or Rio Tinto who mine and sell numerous products.To date FMG has produced only lower-grade iron ore and has not been able to command iron ore prices that some of its competitors have been able to get in the market.

Here is some background on the Eliwani Mine and Rail project:

"During the 2018 financial year, the Board of Directors approved the development of the new Eliwani Mine and Rail project. This project will involve the construction of a new ore processing facility (OPF) and associated mine site in the Pilbara region of Western Australia (approximately 90 kilometres north-west of Tom Price town) and 143 kilometres of new railway infrastructure to link with the company's existing rail network to deliver processed iron ore to its Port Hedland port facility. Construction activity is due to commence in December 2019 and will create 1,900 new jobs. In addition, 500 full-time site positions will be created when the project begins operation. Once operational from late-2020, the Eliwani project facility is expected to produce 30 million tonnes per annum (Mtpa) of iron ore and have the capacity to produce up to 50 Mtpa if the proven resource availability exceeds expectations. Importantly, the resource site contains a higher-quality iron ore grade of up to 60%, which will allow the company to export a higher-grade product and realize higher iron ore premiums than those achieved on its current iron ore export sales. The estimated capital construction cost for the project is A$1.82 billion.

a)Imagine that you work in the investment division of the wealth fund in question. List three or four things that the wealth fund would have considered before investing A$280 Million in FMG.

b)Imagine that you helped do the investment economics for the wealth fund and that you were tasked with trying to put an intrinsic value of the FMG ordinary share using the dividend growth model. The data you obtained was as follows.

1.Last annual dividend = A$0.36/share

2.Required return to the wealth fund = 10%

3.Expected nominal growth rate in the dividend = 4.8%

Show by way of a detailed calculation how you would have come up with a valuation of the FMG ordinary share.