Buy or sell? Brokers argue best play for ASX 200 iron ore share, up 30% in 2 months

There are conflicting opinions among the experts.

| More on:
Miner and company person analysing results of a mining company.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX iron ore share Champion Iron Ltd (ASX: CIA) has soared by 30.3% in two months, closing at $7.74 on Wednesday.

The iron ore price is also up over this period, but only by 11%.

It has risen from US$119 per tonne on 6 October to US$132 per tonne today.

But that's not the only catalyst driving the Champion Iron share price higher. A rising commodity price benefits all ASX iron ore shares, yet Champion has outperformed all the bigger players in recent weeks.

In the past two months:

  • The Fortescue Ltd (ASX: FMG) share price is up 20.7% to $25.08 at the close on Wednesday
  • The Rio Tinto Ltd (ASX: RIO) share price is up 13% to $126.45
  • The BHP Group Ltd (ASX: BHP) share price is up 8.75% to $47.23
  • The Mineral Resources Ltd (ASX: MIN) share price is down 2.9% to $59.72

So, should investors take the recent gains delivered by this ASX iron ore share, or hang on for further growth? There seem to be conflicting views among the experts, so let's check out what they have to say.

But first, a quick update on what's been happening with Champion Iron lately.

Latest news on this ASX iron ore share

Revenue rising in FY24

On 26 October, the Canadian iron ore miner released its FY24 half-year results. It reported an 18% increase in revenue to C$685 million and a 34% jump in net income to C$81.9 million.

Champion Iron mined and hauled 31.7 million tonnes of material during the six months ending 30 September this year, compared to 24.6 million tonnes for the same period in 2022.

The company said this 29% increase was driven by additional mining equipment in operation.

Champion Iron's CEO David Cataford said:

Following the quarter end, our team realized the full potential of Bloom Lake with production levels now reaching its expanded nameplate capacity of 15 Mtpa in the most recent 30 days.

Additionally, we remain confident in our ability to advance the Direct Reduction Pellet Feed (DRPF) Project to potential completion by the second half of calendar 2025.

This project will not only continue to benefit the Québec CôteNord region, but it is also essential for supplying a critical raw material required for the accelerating shift towards green steelmaking.

'A high growth company'

At the Goldman Sachs Global Metals and Mining Conference last month, Champion Iron's Michael Marcotte, the Senior Vice President of Corporate Development and Capital Markets, spoke of growth.

He reiterated that Champion Iron is "a high growth company, focussing on lower risk brownfield expansion projects self-funded from FCF".

He said near-term growth opportunities include a direct reduced iron (DRI) application for Bloom Lake.

DRI is a cleaner way of converting iron ore into iron. He said by 2025, the company intends a 50% conversion of the plant to produce a 69% Fe product that is suitable for a DRI application.

Based on current market pricing, this product could achieve about US$175 per tonne, he said.

Marcotte explained:

It will be one of the highest grade and lowest impurity products produced by a mining operation, and CIA is seeing a lot of interest from US steel mills for the product.

Previous capex estimates have been ~$350mn, with FID is expected at the end of this year.

What the brokers say about Champion Iron shares

Top broker Goldman Sachs tips 7% potential upside

Goldman Sachs has a buy rating on Champion Iron with a 12-month share price target of $8.30. That's a potential upside of 7% for investors who buy the ASX iron ore share now.

Analyst Paul Young explains:

We rate CIA a Buy on (1) Compelling valuation (2) Doubling production of high grade Fe to 15Mtpa, with strong FCF, (3) Growth optionality: High grade DRPF project, Kami and/or Bloom Lake de-bottlenecking or Phase III could underpin growth beyond >20Mtpa. Key downside risks include: (1) Lower production and higher costs, higher seaborne freight, falling high grade Fe premiums (2) Stronger CAD / weaker iron ore prices, higher than expected capex, dilutive M&A.

Also on the buy side…

The team at Celeste Funds also think this ASX iron ore share has more room for growth.

In a recent memo, Celeste Funds said recent share price gains were just the beginning of an upswing. It notes that several projects are underway and making good progress.

The Celeste Funds team said:

Bloom Lake produced a record 3.4Mwmt of high-grade iron ore concentrate with the phase 2 expansion reaching nameplate capacity post-quarter end.

The DRPF project remains on track with final investment decision expected shortly, while the feasibility study for the Kami project is expected to be completed by early next year.

We remain attracted to CIA's growth prospects and their exposure to rising global demand for 'green' steel.

The current consensus forecast published by CommSec has Champion Iron's earnings per share (EPS) predicted to rise from 49.8 cents in FY23 to 67.4 cents in FY24 and 83.3 cents in FY25.

Of the seven analysts covering Champion Iron on the Westpac Trading platform, six rate the ASX iron ore share a buy and one rates it a moderate buy.

But this fundie says the ASX iron ore share is a sell

Catapult Wealth portfolio manager Tim Haselum is on the other side of the fence on the Champion Iron share price.

He told The Bull this week that the ASX iron ore share has "pushed past its full valuation".

Thus, it's time to sell.

Haselum said:

The shares have risen from $5.94 on October 5 to trade at $7.565 on November 30.

In our view, the company recently pushed past its full valuation, so investors may want to consider cashing in some gains.

Motley Fool contributor Bronwyn Allen has positions in BHP Group, Commonwealth Bank Of Australia, and Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

Two miners standing together.
Resources Shares

2 battered ASX mining shares to buy for cheap right now

The global economy is set to improve in the coming year. That's why one expert is seeing a huge 58%…

Read more »

A happy miner pointing.
Resources Shares

Will Fortescue stock be worth more than CBA by 2026?

The resources giant has done a wonderful job of growing. Can it keep going?

Read more »

a woman wearing a sparkly strapless dress leans on a neat stack of six gold bars as she smiles and looks to the side as though she is very happy and protective of her stash. She also has gold fingernails and gold glitter pieces affixed to her cheeks.
Resources Shares

This ASX gold stock just fell 31%. It's time to buy

The global market for the precious metal remains strong, so Blackwattle analysts advise looking past the recent sell-off of these…

Read more »

A girl holding a globe shouts into a green megaphone about climate change.
Resources Shares

ASX mining shares up amid Labor plan to spend multibillions on renewables revolution

Prime Minister Anthony Albanese will deliver a speech in Newcastle tonight.

Read more »

Miner looking at a tablet.
Earnings Results

South32 share price lifts off as ASX 200 miner greenlights US$2.2 billion project

ASX 200 investors appear optimistic about South32’s major US project approval.

Read more »

Miner and company person analysing results of a mining company.
Resources Shares

BHP share price resilient ahead of Friday's strike action

BHP shares are marching higher today despite a looming workers’ strike on Friday.

Read more »

Female miner smiling at a mine site.
Share Gainers

If I'd invested $5,000 in this ASX mining stock a week ago I'd have $11,923 today!

The little ASX mining stock has drawn rising interest from investors this past week.

Read more »

Two excited mining workers in yellow high vis vests and hardhats shake hands to congratulate each other on a mineral discovery
Resources Shares

2 ASX lithium shares with cash to ride out the current depression

The last 12 months have been a disaster for miners of the battery material. But this pair looks good for…

Read more »