Twiggy’s $2 billion gain

Australia’s iron ore miners and billionaires are benefiting from iron ore prices rocketing back above US$150 a tonne, almost double the price it was back in September 2012.

So much for some analysts’ forecasts of US$50 a tonne.

Spot iron ore prices hit a three year low in September, falling to under US$90 a tonne. At the time, it was feared that many of our smaller, higher cost miners would be pushed to the edge, unless the price recovered quickly. It’s certainly done that, and the miners have seen their share prices soar. Fortescue Metals Group (ASX: FMG) shares are up 39% in the last three months, Atlas Iron Limited (ASX: AGO) is up 27%, Rio Tinto Limited (ASX: RIO) has seen its share price climb over 28% and BHP Billiton Limited’s (ASX: BHP) shares are up 15% over the same period.

The rising iron ore price has even prompted Fortescue to resume its Kings deposit at the Solomon mine this month, which will lift Fortescue’s production capacity to its goal of 155 million tonnes per annum, by the end of calendar year 2013.

Back in September 2012, Fortescue refinanced much of its short to mid-term debt, and now the company’s earliest debt is due to be repaid in November 2015.

A month earlier, 32% majority shareholder and chairman, Andrew “Twiggy” Forrest purchased $38.5 million worth of shares in a vote of confidence that the iron ore price would eventually recover, along with the company’s fortunes. Twiggy certainly timed that one right – Fortescue’s share price is up 64% since September 2012, and has added $2 billion to his paper worth. Gina Rinehart and her company, Hancock Prospecting, will also be in line to benefit, with royalties coming from Rio’s Pilbara mines as well as Hancock Prospecting’s own iron ore projects.

Still, heavyweights, BHP and Rio don’t expect the iron ore price to sustain its current climb, attributing the recent rise to restocking by steel mills and traders, and the looming cyclone season in northern Western Australia.

Demand for iron ore is still expected to moderate in the long term, as additional supply comes online and China moves from an industrial economy to more of a consumer focused economy.

The Foolish bottom line

The higher iron ore price and reports of record exports in December from Port Hedland will be welcomed by the Federal government, increasing the chances of revenues flowing into the government’s coffers under the government’s new resources tax. It’s also good news for our economy as iron ore ranks as our most lucrative export, and is likely to see Australia record its 22nd year of continued economic growth.

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Motley Fool writer/analyst Mike King owns shares in BHP.  The Motley Fool ’s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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