Iron ore stocks hammered

ASX shares fall, iron ore stocks hammered

Can US policymakers provide some relief for battered ASX mining stocks?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 13, 2012 5:19 pm AEST

The S&P/ASX 200 index (Index: ^AXJO) has closed down 0.5%, after iron ore prices fell below US$100 a tonne overnight, dragging down resources stocks.

The continued rise of the Australian dollar versus the greenback, currently just under US 105 cents, has also seen many companies with overseas earnings sold off.

These three stocks were slammed, due to exposure to either iron ore or coal.

Fortescue Metals Group Limited (ASX: FMG) shares have slumped 14% to $2.99, after Fairfax media reported that the company had asked its lenders to waive all debt covenants for the next 12 months.

If the banks decline, the Fortescue could be unable to draw down on its existing lines of debt, and may be forced to raise equity (as we suggested last week) at a deep discount to the current share price. Another option for the company may be an injection of equity from Chinese companies looking to guarantee a cheap source of iron ore for the long-term.

Arrium Limited (ASX: ARI) — ex OneSteel, shares crashed 11% to 52 cents. Having changed its spots from a steel producer to an iron ore miner, the company appears to have jumped from the frying pan into the fire — as we also warned in February. With iron ore prices falling so dramatically over the past few months, the company could find itself a similar boat to Fortescue, and forced to raise equity at a low point in the cycle.

Shares in Atlas Iron Limited (ASX: AGO) have fallen 6% to close at $1.47. As one of Australia's up-and-coming iron ore producers, Atlas has higher costs of production that the big miners like Rio Tinto Limited (ASX: RIO), Brazilian giant Vale and BHP Billiton (ASX: BHP). Recent falls in the iron ore price put its margins at risk.

The Foolish bottom line

All eyes will be on the US Federal Open Market Committee (FOMC) tonight our time, with market expectations that we will see another round of quantitative easing, or QE 3 as it's known, to try and kick-start some growth in the US economy.

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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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