The Atlas Iron Limited share price has doubled in past month: Here’s why


The Atlas Iron Limited (ASX: AGO) share price has zoomed 29% higher today, and has now risen 120% in just the past month.

There’s one major reason why.

The iron ore price.

It was up another 4.4% to US$74.12 a tonne according to MetalBulletin overnight. For the year, the commodity price has gained 72%, and it’s also the highest price since November 2014.

The situation is also different to 2014.

In November 2014, prices were on a downtrend, steadily falling from above US$100 a tonne in May 2014. Today, we appear to be heading back to boom times and similar pricing for the steelmaking ingredient.

iron ore price chart

Source: MetalBulletin


Smaller, and junior, iron ore miners with higher production costs and lower quality ore have been among the biggest beneficiaries, although the world’s fourth largest iron ore miner Fortescue Metals Group Limited (ASX: FMG) has been the biggest winner so far this year. For smaller miners, a $1 per tonne increase in the commodity price can double their margin. Major miners like Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) have ultra-low margins already and a $1 increase has much less impact.

Fortescue’s share price has risen 232% year-to-date (YTD). Atlas is only up 22% YTD, but the surge in the share price recently means the miner should now be generating a profit. Since October 25, the spot iron ore price has consistently been above US$60 a tonne.

Atlas reported cash costs of A$50 a wet metric tonne (wmt) in the most recent quarter and received an average price of A$56/wmt in the quarter. At the current exchange rate of 75.82 US cents, the spot price is A$97.76 a tonne. That should mean Atlas is now generating healthy margins and profitable once again.

Grange Resources Limited (ASX: GRR) has also seen its share price rocket today – up 17.4% to 13.5 cents in lunchtime trading, as has BC Iron Limited (ASX: BCI) – up 22% to 19.5 cents.

The question remains, though. Is the current price sustainable, and could we see it go even higher, or will it crash back to levels of around US$50-US$55 a tonne many analysts have forecast?

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Motley Fool writer/analyst 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.

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