In what may turn from a trickle into a flood, the falling iron ore price is beginning to affect companies outside the iron ore mining sector.
The iron ore price has dropped more than 50% in the past 9 months and is currently trading around US$48.82 per tonne.
With junior iron ore miner Atlas Iron Limited (ASX: AGO) suspended on the ASX, and in the process of closing its mines, a number of companies associated with Atlas have been negatively affected.
Transport company McAleese Ltd (ASX: MCS), which transports much of Atlas’s ore from several mines to port via trucks, is also suspended, as it attempts to work out the impact on its own revenues and business. Given Atlas was a key client, it appears that the miners’ downfall will have a significant impact on McAleese’s earnings.
Logistics and port operations company Qube Holdings Ltd (ASX: QUB) says it won’t be materially affected by Atlas shutting down operations, but Atlas’s ore represents 64% of the 16 million tonnes Qube handles out of the Utah Point facility – as colleague Brendon Lau pointed out earlier today.
Mineral Resources Limited (ASX: MIN) will lose revenues from mining and crushing operations at Atlas’s Wodgina mine in late April.
Another mining services contractor MACA Ltd (ASX: MLD) will lose between $4 million and $5 million in mining and crushing services revenue each month thanks to Atlas suspending operations.
But MACA also announced today that it will lose $3.5 million revenue per month due to the suspension of mining at SinoSteel Midwest Corporation Limited’s (SMC) Bluehills operation next month. MACA says the impact will be $30 million lopped off its work in hand position.
Suddenly, MACA’s stated $1.2 billion work in hand doesn’t look that impressive.
Now this is mainly just the impact from Atlas’s fall from grace. Mining services companies, particularly those that provide support to iron ore miners in Australia, are likely to feel the heat as more iron ore mining is suspended. From there, it could spread to second-order companies such as Qube, including Aurizon Holdings Ltd (ASX: AZJ) – which hauls iron ore in the Pilbara, Skilled Group Ltd (ASX: SKE) – which provides labour and related services to the resources industry, and even spread beyond that to power and gas companies providing energy to mining operations.
The $25 billion hole in the Australian economy could be about to become much bigger.
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