BC Iron, Mt Gibson and Atlas Iron squeezed by iron ore rout

BC Iron, Mt Gibson and Atlas Iron squeezed by iron ore rout

Date
March 6, 2015 - 11:12AM

BC Iron's breakeven price – the price where is it is not losing or making money – is estimated at $US60-$US66 a tonne in the second half of this financial year, RBC says. Photo: Reuters
It would have come as no surprise to Australia's iron ore miners to see the price for the commodity with the number five at the front.
But the fact that iron ore is now trading below $US60 a tonne on the spot market will again underline the widening gap between the sector's have and have-nots.
The price of benchmark iron ore at China's Qingdao port dropped 3.6 per cent to $US59.73 a tonne overnight, according to Metal Bulletin, hitting a new six-year low.
The recent fall would not have been unexpected, given just hours before Chinese Premier Li Keqiang announced the country was lowering its economic growth target to 7 per cent from 7.5 per cent.
The threat of such a move had pushed down prices in a range of commodities, including copper and iron ore, in recent days. The reality of the growth target cut gave prices another sharp jolt downwards.
While it is easy to say $US60 is just a number, the timing of this fall is fascinating.
It comes just a few weeks after both Rio Tinto and BHP Billiton revealed the extent to which they have been able to slash their iron ore costs in recent months, through a powerful combination of productivity improvements, efficiencies, lower oil prices and the lower Australian dollar.
BHP slashed its ron ore cash costs 29 per cent to $US20.40 cent in the six months ended December 31. Rio also made rapid progress in the period, cutting cash costs to less than $US17 a tonne. Deutsche Bank analyst Paul Young believes cash costs of $US15 a tonne are feasible within 18 months.
The price drop also comes a day after Fortescue Metals Group announced a $2.5 billion debt deal that will allow it push back the timing of crucial debt payments from 2017 and 2019 to 2021.
The company's chief financial officer, Stephen Pearce, will be in the US for the next few weeks getting the refinancing package over the line – it won't affect Pearce's dealings, but the overnight price fall won't exactly be welcome news either.
The fall under $US60 comes on the same day the iron ore juniors BC Iron, Mount Gibson Iron and Atlas Iron were removed from the ASX 200. Their share prices have fallen 90 per cent, 70 per cent and 82 per cent respectively in the last 12 months – these are clearly the have-nots.
For these guys, every slip in the iron ore price is bad news. RBC estimated BC Iron's breakeven price – that is, the price where is it is not losing or making money – would be $US60 to $US66 a tonne in the second half of the 2015 financial year. Atlas was running around $US67 a tonne in the first half, and is desperately trying to push its costs down.
While BHP and Rio have their breakeven prices below $US40 a tonne, and Fortescue says its break-even is $US52 a tonne (down from $US60 a tonne late last year) the likes of Atlas, BC and Mount Gibson are sinking further into the red.
For these guys, an iron ore price below $US60 a tonne isn't symbolic – it could be a matter of life and death.


Read more: http://www.smh.com.au/business/mini...n-ore-rout-20150306-13wp6h.html#ixzz3TZAS7YfW