Oreful pun-ishment persists

Having busted through the 2012 low, iron ore is sliding just as expected, down to $84.30/dmt overnight, from an average price last year of $135. And there’s been no let up in early trade in China, with both iron ore and steel futures sinking again.

The first scalp claimed by the iron ore bust is probably that of Cliffs Natural Resources’ iron ore operations. Supposedly the Koolyanobbing mine in WA is being flogged off by Cliffs to eager suitors, but given that the mine’s miles from profitable at current prices, hard to see why anyone would bother in this environment.

While we’re on that subject, and since it’s such a lovely day outside, so why don’t we take a stroll through the menagerie of mini miners whose iron dreams are turning to red dust.

Grange resources chart
Breakeven: $98

Gindalbie chart
BE: $91

Atlas Iron chart
BE: $89

Arrium chart
ARI isn’t a pure-play iron ore miner, but iron ore easily provided the lion’s share of earnings in the first half of FY2014.
BE: $83

Mt Gibsonchart
BE: $80

centrex chart
Here representing SA. Not shipping yet and unless it’s very cheap to move their ore, I don’t imagine they will.

BCIron_chart
BCI has a joint venture with FMG, giving it access to the latter’s railways. They ramped profit 10-fold from a year earlier in the six months ending Dec 2013. Unfortunately that stellar performance is coming unstuck with this year’s collapse in ore prices, and the share price is succumbing to gravity accordingly.
BE: $79

FMGchart
FMG. Easily greatest success story to come out of the latest terms of trade bonanza. It’s break-even is in the mid-$70’s, and they’ll be furiously cutting costs now to remain above water. Although it’s ore isn’t all that much cheaper than some of the juniors, it has size on its side: this year it’s likely to account for over a fifth of Australia’s iron ore exports, a huge increase in volume over recent years. This means that FMG has an inbuilt defence mechanism of sorts; if the small, higher cost producers are all taken out of the market, it’s possible that declines in FMG’s output stabilise prices such that FMG can turn a profit on its remaining production.

That being said, absent a substantial depreciation of Australia dollar, it’s margins are being crushed. As the marginal producer in this market, the question is whether FMG survives as an independent company, not whether it’ll generate a decent return.

Breakeven prices are estimates from UBS

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