2 small players and 1 big rail company are moving into the Pilbara

The revival of Western Australia iron ore exports was underlined again by the 33% year on year increase in ore exports leaving Port Hedland. The port handles about 20% of the world-wide seabourne export of iron ore, with China as one of its largest importers. The major miners, Rio Tinto (ASX: RIO), BHP Billiton (ASX: BHP) and Fortescue Metals Group (ASX: FMG), are all expanding production in the Pilbara.

With the higher iron spot prices now around $130-$135, earnings are forecast to be better, and the race is on to get other projects expanded and underway. Fortescue Metals Group’s recommendation by UBS has been raised to a “buy” from “neutral” because strong earnings and investments from Asian companies will allow the company to pay down its heavy debt.

Fewer interest expenses means a bigger bottom line, and investors can look forward to decent earnings growth, which are already up about 20% over 2012.

Potential growers:

Atlas Iron (ASX: AGO) stands to benefit from higher prices and larger volumes it has achieved this year — a little over 9 million tonnes in 2013, but it currently has capacity of 10 million. Its share price hit a low of $0.69 in June, but now is up 58% to $1.09.

Rail transport company Aurizon (ASX: AZJ) is working to expand its networks into WA, and is developing a plan to operate rail and port facilities in the Pilbara in conjunction with Brockman Mining (ASX: BCK) and Atlas Iron. Presently at a feasibility study stage, it would integrate rail and port infrastructure, and give better port access to the two miners, allowing them to ship more ore at better transport costs.

Aurizon is up about 30% over the past 12 months, at $4.79, hitting new highs since listing in 2010.

Brockman Mining, formerly Brockman Resources, was trading at $0.05. It had a net loss of $66.3 million in 2013, but with increases in ore production foreseen, prospects for this year are better. Its currently proposed Marillana mine will be linked to the port by Aurizon as part of the plan that the miner and rail group have.

Foolish takeaway

Developments can be slow in mining, but they give investors enough time to read reports and look at data to see if the return is worth it for them. Don’t just look for penny stocks. Demand stable earnings, good growth, and good management before committing yourself.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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