Iron ore’s race to the bottom

Resources Corner

The Federal budget is less than a month away and Treasurer Joe Hockey has offered a bearish forecast for iron ore prices suggesting there’s no floor and that prices could crash to $US35/tonne. The forecast will help to manage market expectations as the Treasurer grapples with plunging revenues and the hangover from last year’s troubled budget.
 
Rio Tinto has defended its growing iron ore output amid plunging prices at the Rio Tinto Plc AGM in London. Atlas Iron says the price crash is forcing it to suspend its mining operations and shut down production over the next 14 days. McAleese and Mineral Resources have also both reported being effected by the shutdown. Meanwhile Fortescue Metals Group has increased its output and lowered its costs in the third quarter at the same time as condemning BHP and Rio Tinto for flooding the market with ore.
 
Economic News
 
The iron ore price is sliding south amid a growing glut and there is no shortage of finger pointing with the big boys, BHP and Rio Tinto bearing the brunt of it. Fortescue metals has been a vocal critic of this faintly veiled strategy of forcing higher cost (smaller) players out of business. The irony was deafening this week when we heard that Fortescue itself would be ramping up production. If you can’t beat ‘em, join’ em, it seems. 
 
Ratings watch
 
The big miners were also put on notice this week as the Standard and Poor’s rating agency warned that they may face ratings downgrades if the iron ore plunge continues to head south. The big iron ore players: BHP, Rio Tinto and Fortescue were amongst other foreign producers who were told that, with continuing supply and demand imbalances, low prices will threaten the companies' stability with risk profiles and earnings volatility approaching dangerous levels.
 
Laying blame for the ore glut
 
Rio Tinto Limited (ASX:RIO) has defended its growing iron ore output amid plunging prices at the Rio Tinto Plc AGM in London. It was argued that with iron ore trading around $50 a tonne that margin maintenance is more important than ever and that being the lowest cost producer is fundamental to business health.
 
Atlas Iron Limited (ASX:AGO) says that the plunging iron ore price is forcing it to suspend its mining operations and shut down production over the next 14 days. The decision will also have a roll on effect to a number of contractors in the region and the 500 staff employed by Atlas face the chop if the company is unable to recover. 
 
Fortescue Metals Group Limited (ASX:FMG) has increased its output and lowered its costs in the third quarter of the 2015 financial year. The iron ore miner’s production rose 1 per cent to 37 million tonnes and quarterly cash costs dropped 9 per cent to $US25.90 per tonne.
 
McAleese Limited (ASX:MCS) has been greatly affected by the Atlas Iron (ASX:AGO) decision to cease production and has requested a trading halt. The transport company was expecting about 40 per cent of its earnings from its haulage contracts with Atlas Iron and says it needs 10 days to review the financial and operational implications of the decision. 
 
Mineral Resources Limited (ASX:MIN) has become the latest company to comment on Atlas Iron Limited’s (ASX:AGO) decision to suspend its mining operations and shut down production. After falling to the benchmark index’s worst performer yesterday the mining goods and services company made an announcement after the market closed. 
 
Production gains
 
Whitehaven Coal’s Limited (ASX:WHC) Maules Creek mine has helped fuel the miner’s strong third quarter production result. The company says Maules Creek produced 1.1million tonnes of coal in the three months to end of March and the mine was 93 per cent complete.
 
Ramelius Resources Limited (ASX:RMS) says it has achieved near record quarterly gold production at its Mt Magnet operation in Western Australia. The gold miner delivered 22,655 ounces of gold from the mine in the March quarter, coming in at the upper end of the company’s guidance range. 
 
Doing deals
 
Global mining company Rio Tinto Limited (ASX:RIO) has awarded Viento Group Limited (ASX:VIE) and its Koodaideri Viento Joint Venture entity a $7.3 million contract. The five month contract is for work on the Rio Tinto Hope Downs 4 Waste Fines Facility Project from June.