The iron ore price has surged from below US$47 to yesterday's closing price of nearly US$58 and taken with it the share prices of some of Australia's riskiest mining companies. Regardless, the fact of the matter is that it's also plunged from a high of over US$150 per tonne, ripping out the profits of Australia's biggest and most successful mining companies and the capital of their shareholders.
A Stark Warning
The Motley Fool has been on the front foot for over 18 months warning investors that the good times were likely coming to an end, and even recently went on a research trip to China to see whether the dire forecasts and rumoured ghost cities were true.
As it turned out, almost all the rumours were found to be true. The Motley Fool's Joe Mayger found that there are enough empty apartments in China to house 6 years' worth of urban migration, that inventories and accounts receivable are growing faster than sales at major Chinese consumer companies, and that residential property construction is stalling. These are bad signs coming from the consumer of 2/3 of the world's seaborn iron ore.
Australian Companies Impacted
The iron ore price fall has and will continue to have a massive impact on the lives of Australian workers and investors. Most experts are predicting a US$60 to US$80 iron ore price over the medium term. At the current price around US$57 a tonne, analysts at UBS believe that only FIVE ASX-listed miners are making money selling iron ore. Below is a list of the estimated break-even cost of production of Australia's major miners as of April 1:
- Rio Tinto Limited (ASX: RIO) @ US$35
- BHP Billiton Limited (ASX: BHP) @US$36
- Arrium Ltd (ASX: ARI) @US$45
- Mount Gibson Iron Limited (ASX: MGX) @US$58
- Fortescue Metals Group Limited (ASX: FMG) @US$53
- BC Iron Limited (ASX: BCI) @US$59.50
- Atlas Iron Limited (ASX: AGO) @ US$64
Should You Own These Stocks?
The question right now is probably not DO you own these companies but rather SHOULD you own them and what will you do if iron ore plunges again?
