Despite a tougher outlook for iron ore prices, Australia's biggest resource companies are pushing more and more of the steel-making ingredient out the door.
Last week, Rio Tinto (ASX: RIO) was the first to release its second-quarter operations report, which showed solid results for shareholders. Since expanding its mines in the Pilbara to produce 290 million tonnes annually, another proposed $5 billion upgrade could see that increase to 360 million tonnes, although some analysts believe it may be unlikely. Despite iron ore being the company's most lucrative product, uncertainty and volatility in its price may force it to put a brake on any further expansion.
BHP (ASX: BHP) also boasted massive iron ore figures in its annual operating and production report last week. The company produced 170 million tonnes of iron ore but has set an increased guidance of 220 million tonnes with development of its Jimblebar project. However, over 32% of BHP's revenue stems from China and worries over its growth rates are worrisome for BHP and Rio to say the least. As the country begins to transition away from rapid manufacturing growth to a more services based economy, steel will be less sought after.
Although it may seem counterintuitive to be increasing their reliance on the iron ore, our biggest miners are not alone. Yesterday, BC Iron (ASX: BCI) reported that it's Nullagine Joint Venture with Fortescue (ASX: FMG) achieved "record production and export levels" despite realising an average CFR sales price of US$111 per tonne, a 15% discount on this time one year ago. Fellow pure play iron ore miner, Atlas Iron (ASX: AGO), has recently made plans to increase iron ore capacity by at least 3 million tonnes annually when its $146 million Mt Webber mine becomes operational.
Foolish takeaway
Iron ore companies are facing uncertain and volatile times ahead. From an investor's perspective, BHP is well placed to take advantage of the boom of US shale oil, has stronger balance sheets than its peers and is a more diversified miner. However there are other companies which offer twice the dividend yield and arguably more safety and growth, so perhaps it might be worth watching from the sidelines until we can understand the effects that lower commodity prices have on all of our miners.
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More reading
- BHP, Rio reports are bad news for iron ore
- Woodside petroleum revenue drops 6%
- BHP's report strong, but blemished
Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
