Shares in iron ore miner Atlas Iron Limited (ASX: AGO) have been smashed so far this year. Although they are trading 4.8% higher today at 76c per share, they are still down 33% year to date and 39% since hitting a 52-week high of $1.24.
Although the fall in price might scream 'bargain' to some investors hoping to be holding if the shares recover, I am not so bullish. In fact, I think they could well fall much further from here.
Unfortunately, the nature of miners is that they are heavily leveraged to the price of the commodities which they produce. The iron ore price has dropped as low as US$97.50 a tonne this week (after trading at US$135 a tonne throughout 2013) and could fall to just US$80 a tonne over the next 12 months.
While the larger miners like BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) would be able to weather the storm, smaller producers like Atlas Iron will come under substantial pressure.
Atlas Iron has consistently proven itself to be a well-run miner and I hope for shareholders' sakes that I'm wrong, but the fact that the company remains one of the most shorted stocks on the ASX could well be justified in this case.
