The iron ore sector has been a chaotic space in recent months, with miners variously above or under water depending on the fluctuations of ore prices and the success of their cost-cutting programs.
Fortescue Metals Group Limited (ASX: FMG) bought itself some breathing room recently with the issue of some 9.75% yielding bonds – but only time will tell if it was worth the cost.
Junior miner Mount Gibson Iron Limited (ASX: MGX) has enjoyed a particularly fine day on the ASX today, with shares soaring up to to 10% after the release of a promising third quarter report.
Here are some of the highlights:
- Cash and term deposits of $324 million ($0.30 per share) as at 31 March 2015
- On track to meet full year sales guidance of 4.8 – 5.2 million wet metric tonnes (wmt)
- Cash costs (excluding royalties and corporate overheads) averaged $47.80/wmt for the quarter
- All on-ground exploration suspended, total employee numbers reduced by 19% during the quarter
Mount Gibson also began evaluating the remediation options for its Koolan Island mine, which some readers may recall is now underwater after a seawall collapse earlier this year.
As you can clearly see from the above highlights, Mount Gibson has done everything it can to clamp down on costs, including slashing employee numbers and cancelling all exploration.
Cash costs have now dropped below the market price of iron ore, which is trading at around US$54 per tonne. After overheads and corporate costs however, Mount Gibson is likely to be trading very close to its break-even point.
Fortunately the stock has $324 million in cash at the bank, and with at least one research house stating the iron ore glut has ended, there could be light at the end of the tunnel for Mount Gibson shareholders.
(Find out why one CLSA analyst thinks the iron ore glut has peaked in my earlier article here)
However as I noted in my earlier article, stabilisation of iron ore prices depends largely on continued Chinese demand as well as the goodwill of Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) – neither of which I would feel comfortable relying on.
I again suggest readers continue to avoid the sector and look for some better ideas.
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