Motley Fool Australia

Iron ore: The chart that shows who’s making money

Plbara Iron Ore

Iron ore prices have had a steady fall over the past 18 months, but appear to have stabilised – at least in the short term at around US$50 per tonne. For the major iron ore miners like Rio Tinto Limited (ASX: RIO), Brazil’s Vale and BHP Billiton Limited (ASX: BHP) with super-low production costs, it does mean lower profits, but at least they are making a profit based on C1 cash costs (which doesn’t include some necessary expenses).

The following chart shows my rough (very rough) calculation of gross profits for seven of Australia’s iron ore miners, including BHP, Rio, Fortescue Metals Group Limited (ASX: FMG), BC Iron Limited (ASX: BCI)Arrium Ltd (ASX: ARI), Mount Gibson Iron Limited (ASX: MGX) and Atlas Iron Limited (ASX: AGO).

Iron ore prices and margins Aug 2015

Source: Company reports, my calculations

The chart shows two important points. Mount Gibson and Atlas Iron receive much lower prices for their iron ore, due to the quality of their ore, while also having correspondingly higher production costs.

An important point to note is that almost all of these miners expect to see much lower production costs in the year ahead. BHP expects cash costs to fall to as low as US$15 per tonne – in some cases, a third of the cost of some of the junior miners like Mount Gibson and BC Iron.

The problem for all these companies is that iron ore prices are forecast to fall further. Look out below!

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…