Motley Fool Australia

Motley Fool Australia

Since 1993, millions of investors have trusted The Motley Fool for simple, down-to-earth investing research.

Long-term investors see value in iron ore stocks

The slump in the price of some of Australia’s best known mining stocks caused by lower prices and expectations of iron ore have led some to believe that now is the time to buy.

Justin Smirk, a senior analyst at Westpac says “it is a longer-term development story unfolding” and believes mining stocks are relatively cheap to buy. Since the New Year, shares in Rio Tinto (ASX: RIO), BHP (ASX: BHP) and Fortescue (ASX: FMG) have dropped 17%, 11% and 25.5% respectively.

Some analysts believe the long-term value could be 20-30 years into the future, when the prices of both iron ore and coking coal return in the next commodities super-cycle. Kelly Teoh, a strategist with IG, says “people are talking about the commodity super-cycle being over, but commodities will always have a place in society because if you look at global population growth, we are reaching unprecedented levels”.

In the past few months, we’ve seen Rio’s Canadian iron ore assets go under the hammer and it’s had a good amount of interest from non-mining suitors. Canada’s two biggest pension funds have shown interest in the $4 billion, 59% stake of Iron Ore Co. of Canada.

Rio’s new CEO, Sam Walsh, has made plans to cut costs by shedding non-core assets in a hope to return to a profit before 2014. So far, assets in the US, Mozambique, France, Australia and Canada have either gone under the hammer already or are still waiting for potential buyers.

Foolish takeaway

The long-term demand for iron ore will continue to grow as the global population reaches levels unprecedented today but as an investor you’ve got to ask yourself what is the best possible price to get some stocks in the resources sector. Goldman Sachs has tipped iron ore to reach $80 per tonne by 2015, meaning that revenues will be much tighter and the good companies will be sort from the bad. Perhaps the short run volatility could present some opportunities to buy i,n but when there are so many other great stocks on the market, perhaps your money could be better spent elsewhere.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

The One ASX Pick You MUST Add to Your Portfolio

Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!).

Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool’s Top Stock for 2014."

By clicking this button, you agree that we may contact you to keep you informed about services we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy. The Motley Fool Australia Pty Ltd (ACN 146 988 052) holds an Australia Financial Service License: 400691. Please refer to our Financial Services Guide (FSG) for more information.

See all posts by Owen Raskiewicz
The Motley Fool