AUSTRALIA’S embattled iron ore miners have started 2015 in the best way possible, posting strong share price gains on the back of expectations that the worst of the iron ore price fall may be over.
After enduring a nightmare 2014, the likes of Atlas Iron, BC Iron and Mount Gibson Iron all enjoyed eye-catching starts to the new year.
Atlas, which saw its share price slump by 86 per cent last year to a record low, posted a dramatic 39.4 per cent jump to 23c per share. BC Iron, whose 89.8 per cent fall last year made it the worst-performed stock of the ASX 200 index, put on 17 per cent while Mount Gibson gained 14.3 per cent.
South Australian iron ore miner and steelmaker Arrium gained just under 7 per cent.
The gains came on the back of a modest rise in the spot price of iron ore to $US71.26 a tonne, up from a low of $US66.84 a tonne just before Christmas. In Australian dollar terms, iron ore was trading at $87.27 a tonne after bottoming out at $80.24 a tonne on Boxing Day.
The Atlas share surge earned the company a price query from the ASX, with Atlas attributing the rally to a combination of rising iron ore prices and its own efforts to slash its operating costs.
Atlas recently announced that its cost-cutting program had resulted in Atlas’ cost guidance for financial 2015 year being reduced to $64-$68 a tonne, targeting the lower end of that range.
“As a consequence, Atlas is very well placed to take advantage of a rising iron ore price, with the current production rate at approximately 12.5 million tonnes per annum (mtpa) and on track to reach 13-15mtpa by late June 2015,” the company said.
The iron ore price halved last year from its peak of $US135.27 a tonne as the market responded to a wave of new production from Australia and a softening in demand from the world’s biggest iron ore consumer, China.
The price fall drove a number of higher-cost iron ore producers out of business and has prompted an intense round of cost cutting by miners big and small as they look to salvage profit margins.
Philip Kirchlechner, a director of consultancy Iron Ore Research, said the trading suggested the market might have overreacted in selling down iron ore stocks to the level they did. “It’s a rebalancing, we’ve had too much pain,” Mr Kirchlechner said. “There’s no immediate logical reason why these stocks should go up other than to say they’re oversold.”
A continued fall in the value of the Australian dollar would be important for relieving pressure on local iron ore miners, he said.
This year will see Gina Rinehart’s Roy Hill iron ore mine in Western Australia come into production, with the 55 million tonne a year mine expected to rank at the lower end of the cost curve.
Mr Kirchlechner said India represented a potential source of upside for iron ore miners this year, with government policy, infrastructure inefficiencies and growing steel demand turning the nation from an exporter to an importer.
“India is one of the few bright spots for iron ore in the sense that 100 million tonnes of export volume has completely disappeared, and this year we’re looking at exports of around 20 million tonnes into India,” he said.
BCI Price at posting:
62.0¢ Sentiment: None Disclosure: Not Held
MGX Price at posting:
28.0¢ Sentiment: None Disclosure: Not Held
ARI Price at posting:
23.0¢ Sentiment: None Disclosure: Not Held
AGO Price at posting:
23.0¢ Sentiment: Buy Disclosure: Held
FMG Price at posting:
$2.83 Sentiment: Buy Disclosure: Held
