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Have these 3 junior miners got what it takes to survive the iron ore downturn?

With the latest reports for three of Australia’s most promising junior iron ore miners all out of the way, investors have the perfect chance to compare the three companies and decide which holds the most promise at the lowest risk going forwards.

BC Iron Limited (ASX: BCI) – last traded at $2.78, down 30.3% for the year

Key points:

  • Total cash costs for 2015 predicted to be $60-68/wet metric tonne (wmt)
  • Cash of $158.9 million
  • FY2015 sales guidance of more than 6.2 million wmt (similar to last year)
  • Channel Iron Deposit (CID) mineral resources of 105.9Mt at 53.1% Fe, and Direct Shipping Ore (DSO) resources of 38.8Mt at 57.1% Fe

Mount Gibson Iron Limited (ASX: MGX) – last traded at $0.685, down 2.8% for the year

Key points:

  • Total cost of goods sold $74.64/wmt
  • Cash and term deposits of $519.8 million
  • FY2015 sales guidance of 6.6-7.0m wmt (down from 9.7m wmt this year)
  • Mineral resources of 88.6Mt at 61.9%Fe and reserves of 45.2Mt at 62.6%Fe

Atlas Iron Limited (ASX: AGO) – last traded at $0.565, down 27.4% for the year

Key points:

  • Total cost of goods sold $76.80/wmt
  • Cash of $264 million
  • FY2015 sales guidance of 12.2-12.8Mt (up from 10.9m wmt this year)
  • Indicated mineral resources of 114Mt at 57.8% Fe, and inferred resources of 669Mt at 56.2%Fe

While BC Iron appears to have the best cash costs heading into 2015, it also has the worst overall cash position and reserves.

Mount Gibson Iron has the highest ore quality and cash reserves, although any increase in production will rapidly reduce its mine life should further expansion and exploration be unsuccessful.

Atlas Iron has the highest cost of goods sold, although it enjoys extensive reserves and an increase in production should allow for some costs to be reduced through averaging.

Both Mount Gibson and Atlas are targeting further cost reductions in 2015 which will bring them closer to BC Iron’s cost rates.

Based on the information available, Mount Gibson iron appears best placed to weather an iron ore downturn thanks to comparatively high Fe grades and a large cash position allowing ample room for expansion and exploration.

Atlas Iron comes in second with a solid cash position to weather short-term slowdowns and huge ore reserves safeguarding the company’s future production.

BC Iron comes in third on all metrics, although a proposed merger with Iron Ore Holdings Ltd. (ASX: IOH) would – if successful – catapult the company to the top of the list in terms of mine-life and potential for expansion.

Future low-cost expansions also look likely thanks to promising initial success with explorations in Brazil.

While iron ore miners are looking cheap on current valuations, it’s important to note that the full effect of low iron ore prices has not yet flowed through to company profits – and prices could go lower yet.

The outlook for iron ore may not be all that favourable, but gold, copper and oil are three other resources with much greater appeal.

The Motley Fool has been following three small-cap companies that recently began scaling up production to take advantage of opportunities in their respective fields.

While these shares are more risky, they also carry the potential for greater reward – particularly if  investors can get to them before the rest of the market wakes up to the opportunity.

If you’re interested, we’ve recently released a free 7-page report covering these companies, their potential and risks, which you can access simply by clicking on the link below and entering your email address.

It takes less than 30 seconds, and yes, it is – completely – FREE!

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Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.

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