11/11/2014 – Iron ore specialists take $10b hit as prices slump
The crashing iron ore price has wiped more than $10 billion of value off Australia’s four key pure-play iron ore miners so far this year, with Atlas Iron worst hit by the broad sell-off.
Together, Fortescue Metals Group, Mt Gibson Iron, Atlas Iron and BC Iron have suffered enormously from the near 45 per cent fall in the iron ore price this year. A combined $10.2 billion has been wiped off their market capitalisations since December 31, analysis shows.
Atlas Iron has been worst-hit by the reaction to the price crash, with its market capitalisation plunging 78.4 per cent to $216.1 million as of November 7, down from $1 billion at the start of the year.
BC Iron has lost about $473.6 million in value, bringing it down 73.6 per cent to a current market capitalisation of $169.6 million, while Mt Gibson is $620 million lighter at just $480 million.
Fortescue has seen $8.3 billion wiped off its market capitalisation this year, representing a decline of around 46 per cent from $18.1 billion to just $9.8 billion.
Driving these dramatic losses is the plummeting iron ore price, which crashed to a fresh five-year low last week of just below $US76 per tonne, levels not seen since June 2009.
The price is down almost 45 per cent this year, now hovering about $US75.80, with some analysts predicting it could go as low as $US70 by year’s end.
The price has been suppressed by new Australian supply that came on-stream this year, flooding a market already dealing with cooling Chinese demand.
Independent resources analyst Peter Strachan said he can’t see any end to the pain in the iron ore business because the market hasn’t been as responsive as expected in removing high cost producers.
“If the iron ore price falls further it isn’t going to be good news for these companies,” Mr Strachan said.
“In the next few weeks I am expecting to receive announcements about job losses, further measures to cut costs, the impact of low grade discounts. It’s going to be a tough period ahead, especially for companies that are reliant, as Warren Buffet says, on the generosity of a stranger – the bankers.”
The falling Australian dollar has provided some respite for iron ore exporters but has been as-yet unable to keep pace with the staggering decline of the iron ore price.
Year-to-date, the S&P/ASX 300 Metals and Mining Index, a barometer for the health of the mining sector, has dropped 447 points, or 13.2 per cent to 2933.4, as of November 7.
Analysts predict that if depressed prices continue, Australia’s third force in iron ore will have difficulty reducing its debt bill, which stood at $US6.9 billion at 30 September.
Fortescue would require more debt if the iron ore price remained below $US79 per tonne for an extended period and the Australian currency remained around $US0.88, Deutsche Bank analyst Paul Young wrote recently.
Analysts are also closely watching BC Iron and Atlas Iron after both miners revealed in their latest quarterly reports that they were struggling to break even.
“Atlas’s achievements on cost reduction, while admirable, are with the assistance of the falling Australian dollar only sufficient to match the impact of recent iron ore price declines,” Goldman Sachs analyst Owen Birrell said in a recent note.
“While full-year 2015 and 2016 guidance upgrades are positive for sentiment, we highlight that wafer-thin margins are likely to persist in the near term.”
Source – SMH.com.au