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Australia's freshly minted richest man, Andrew Forrest, passed a significant milestone last month. His Fortescue Metals Group delivered its first shipment of iron ore to China. Fortescue achieved this on time and without any major cost blow-outs.

Fortescue has gone from a concept in 2003 to operational in 2008. After Forrest's previous failure at Anaconda Nickel, many doubted that Fortescue would become operational in such a short space of time. Due to the scepticism of Australia's institutional investors, Forrest raised much of the initial funding offshore, primarily from the Chinese.

Given that China is the primary market for Fortescue's iron ore, it is perhaps not surprising they recognised the value of an initial stake. And now they want more.

The company has the potential to break Rio Tinto and BHP Biliton's grip on Western Australia's production of the red dirt. As such, the company represents significant strategic value to China's steel mills, which are seeking to improve their leverage in contract negotiations. Major players Baosteel, Sinosteel and Chinalco are all likely candidates to buy into the company.

The outlook

Achieving the first shipment of 180,000 tonnes of ore is a significant milestone. However, the real tests for Fortescue lie ahead. Proof of success will come if Fortescue can hit, and sustain, its production targets. Management expects to deliver about 23 million tonnes of ore this year, ramping up to 55 million tonnes in 2009.

Fortescue's ambitions don't stop there. The company's longer-term target is for annual production of 100 million tonnes of iron ore. To achieve this, the miner must do more than just dig the stuff out of the ground. A significant expansion of existing port and rail infrastructure is also required.

To achieve this, Fortescue hopes to share rail lines with BHP Biliton. The mining giant is unlikely to facilitate a loss of market share by agreeing to such a deal - unless it is legally forced to. Question marks remain over whether Fortescue's resource base can sustain such high levels of production.

Price

Fortescue's stock price performance has been overwhelmingly bullish over the past 12 months. After falling to a low of $2.50 last August, the stock established a firm upward trend, peaking at $8.75 in December.

For much of 2008, the stock has been contained in a volatile consolidation pattern between the December high and a subsequent low of $4.75.

However, Fortescue broke convincingly out of the consolidation range last month, to reach new all-time highs beyond $10. The break to new highs is a bullish move and indicates further gains are possible.

Worth buying?

Fortescue's management has so far proved its ability to develop a mining operation in record time. However, it has yet to prove it can successfully operate at forecast production levels.

Fortescue must still overcome significant operational challenges, not to mention the possibility of weaker iron ore prices in the years ahead. At current levels, the company's market valuation simply does not reflect these risks.