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Re: Jld3294 post# 374

Monday, 03/10/2014 7:49:38 PM

Monday, March 10, 2014 7:49:38 PM

Post# of 793
Contrarian view ...

Buy iron ore, say fools

Posted by Houses and Holes in Commodities, Iron ore

11:31am on March 10, 2014

From NineMSN and the Motley Fool:

"There’s still every chance that an iron ore price plunge could happen this year, however I doubt that share prices will fall as heavily as they did in 2012 and 2013. Our big miners are much stronger now than in either of the previous two years; debt is lower and falling, capital expenditure costs are much lower and operating costs are falling.

In Fortescue’s case, having already paid off the majority of debt due before 2019, there is much lower risk of a default, cash flow is extremely strong and break-even iron ore costs are expected to fall from US$103 per tonne in 2013 to US$83 per tonne in 2014, before gradually reducing to US$69 per tonne by 2018.

For what it’s worth, the majority of forecasters expect the iron ore price to remain above $90 for the foreseeable future. The breakeven points for BHP and Rio are well below that of Fortescue, and as such they represent safer investments.

Ergo, buy. For “what it’s worth”. An excellent choice of words.

For what it’s worth, this is the same argument that has led the entire market to re-rate iron ore miners upwards over the past quarter in the face of very obviously deteriorating fundamentals.

FMG may have less debt but what if it turns out that it is the swing producer in the iron ore shakeout that is accelerating? Rio’s metrics have improved too and it will always make money out of iron ore but what if it’s profits fall precipitously as the iron ore price more than wipes out volume growth?

The reckoning of iron ore has barely started and price falls do not always mean “buy”."

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