Falling iron ore price hits another miner

Like a rockslide, the plunging iron ore price is inflicting heavy wounds on those in its path. Today it was the Karara Iron Ore Project

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 March 19, 2015 4:20 pm AEDT

As the spot iron ore price continues to tumble, it's inflicting even more pain on companies in the sector.

Iron ore fell 2.6% overnight, to hit US$55.48 a tonne, and appears headed much lower.

Today, the Karara Iron Ore Project, the largest iron ore mine in Western Australia's mid-west announced that it is cutting its workforce by 15%.

Partly owned by Gindalbie Metals Ltd (ASX: GBG) with a 47.8% share and China's AnSteel Group holding the remainder, Karara Mining said today that "due to market conditions and the falling iron ore price", it would regrettably need to shed about 15% of its total workforce.

ABC News reports that about 70 positions will go from its Perth office, mine site and Geraldton Port operations. Karara said the decision followed on from a business review, aimed at "examining every available option to reduce costs".

Gindalbie recently wrote down the value of its investment in the Karara iron ore project by $592 million. Two iron ore miners have already collapsed – Termite Resources – which was 51% owned by IMX Resources Ltd (ASX: IXR) – was the first, followed shortly after by Western Desert Resources Ltd (ASX: WDR), as we noted late last year.

Next in the spotlight could be Atlas Iron Limited (ASX: AGO), BC Iron Limited (ASX: BCI) or Mount Gibson Iron Limited (ASX: MGX) – although Mount Gibson has a substantial cash balance, which may protect it for a while.

Grange Resources Limited (ASX: GRR) may be in a slightly different boat, given it processes its iron ore into much higher quality pellets, and receives a substantial premium above the regularly quoted spot iron ore price.

Even Fortescue Metals Group Limited (ASX: FMG), Australia's third-largest iron ore producer may be at risk from lower iron ore prices, given its huge debt load. And it's clear that investors are worried, with Fortescue unable to secure a replacement debt package at the interest rates it was offering.

With iron ore prices falling and even more supply coming on stream, particularly from the majors and the likes of Gina Rinehart's Hancock Prospecting and its Roy Hill project, there's only one way iron ore prices are headed.

Look out below.

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