Will other junior iron ore miners follow Atlas Iron Limited out of business?

One of the junior iron ore companies will cease production due to ore prices dropping under US$50. Investors should seek out growth stories like CSL Limited (ASX:CSL) and Greencross Limited (ASX:GXL) as better alternatives.

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The first of the junior iron ore miners has dropped. After the ASX closed on Friday, Atlas Iron Limited (ASX: AGO) announced it will stop iron ore production and mothball its WA mines. The stock had already halted trading on Tuesday, 7 April, as the company considered its options.

Ceasing mining operations

There aren't too many options for continuing work with iron ore prices now in the US$40s a tonne. In the company's release, it said mining and crushing will cease within 14 days and then all Atlas projects will be put on care and maintenance. Unless iron ore prices return to about US$65-$70 per tonne, it is estimated Atlas wouldn't have a large enough margin.

Iron ore stood at around US$48 per tonne on Friday.

More could follow

Writing about Atlas Iron now saddens me, but commodity market busts are unavoidable. I previously wrote that investors should avoid the junior miners because the iron ore industry is still a falling knife. Other smaller, high-cost producers could follow because they are price-takers and there doesn't seem to be much let-up in the decline of iron ore.

Most of the commodity markets like copper, coal and gold are down as well, which indicates overall world economic strength is still not good. The US stock market is making new highs because of the near-zero interest rates pushing share prices up. That the US Fed is still hesitant about even beginning to raise interest rates tells you the US is economically shaky. Europe is just starting its own quantitative easing and won't be fully back on its feet for some time.

Better investing alternatives

Since I write about companies from an investor's perspective, amongst the gloom I look for opportunities for good returns. The internationally expanding biopharmaceutical CSL Limited (ASX: CSL) is one for long-term growth. Earnings are expected to rise an average 20% annually over the next several years and dividends should also increase steadily.

Another promising stock is Greencross Limited (ASX: GXL), the company with an expanding network of veterinary practices, as well as Petbarn and City Farmer pet supplies stores. Like a growing restaurant chain, investors getting in at the early stages of store expansion have better chances of very pleasing returns.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.  We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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