Iron ore has risen 7% to US$79/tonne overnight according to The Metal Bulletin. The last time prices were this high was June 2015. Iron ore is now up 16% in the past three sessions, propelling shares of Fortescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO), and BHP Billiton Limited (ASX: BHP) up 18%, 11%, and 12% respectively in the past five days.
At today's prices, equivalent to just over A$100 per tonne, the biggest miners – with their low costs – are virtually printing cash and Fortescue Metals in particular will be making serious headway into its shrinking pile of debt.
Shares in smaller miners like BC Iron Limited (ASX: BCI) and Atlas Iron Limited (ASX: AGO) have absolutely skyrocketed, up 34% and 69% in the past five days, as higher iron ore prices (if they persist) could see them turning something resembling a profit.
Additionally, investors will want to make sure they do their research into turnaround stories like this, since recent times haven't been kind to the balance sheets or the shares on issue for junior miners.
The recent surge in iron ore has been matched by a rise in coal prices, lighting a fire under Whitehaven Coal Ltd's (ASX: WHC) share price – up 241% this year.
Some of the infrastructure projects touted by the recently elected Mr Trump could drive higher demand for iron ore, steel, and coal in the near term, as could the Chinese government's own infrastructure projects.
Rapidly rising share prices at the major miners is exciting, as will be the higher profits and dividends when they come through. Yet investors need to do their research to evaluate whether much of the upside is already priced into a company – as well as whether current prices are likely to improve or deteriorate in the next 2-3 years. Failing to do the legwork could see you buying into the excitement and getting burned later on.
