Investors on the lookout for exposure to the mining sector might want to consider Champion Iron Ltd (ASX: CIA) shares.
That's the view of analysts at Bell Potter, which are feeling bullish about the ASX 200 mining stock.
What is the broker saying about this ASX 200 mining stock?
On Wednesday, the iron ore miner's shares pulled back after it released an update on an unforeseen interruption of its train load-out facility at the Bloom Lake mine. Bell Potter commented:
CIA has announced that a breakdown has occurred at its iron ore concentrate train load-out facility at Bloom Lake. While the breakdown is not expected to impact production, it is expected to temporarily impact concentrate sales. The company is confident that normal shipping activities will resume in the coming days. The breakdown occurred on 3 December 2024 and will likely impact shipments for around two weeks or ~15% of the current quarter.
While this isn't good news and the broker has reduced its earnings estimates accordingly, it isn't fazed by the news. Particularly given its belief that there is upside risk to iron ore prices from seasonal demand. It adds:
We had expected that improved rail performance (with the addition of new rolling stock) in the current quarter would enable CIA to draw on iron ore concentrate stockpiles (~2.8Mt at end September 2024). This working capital unwind (large dollar inventory position) is now more likely to commence in the March 2025 quarter, coinciding with the Bloom Lake concentrator semi-annual maintenance shutdown (i.e. a weaker production quarter).
We also see near-term upside risks to iron ore prices with seasonality in the lead-up to China's strong (post Chinese New Year) steel production period, and potential weather-related supply disruptions in the Pilbara. Earnings changes as a result of this report are: FY25 -10%; FY26-27 no change.
Big returns could be coming
This morning, the broker has reaffirmed its buy rating and $7.10 price target on the ASX 200 mining stock.
This implies potential upside of 16% for investors over the next 12 months.
And with the broker forecasting a 4% dividend yield in FY 2025, the total potential return stretches to 20%.
Commenting on its buy rating, the broker concludes:
We see upside risks spot to iron ore prices as a near-term catalyst. The shift into higher grade production in 2H 2025 will then likely support average realised prices and earnings amid an iron ore price environment generally expected to weaken. CIA will also benefit from maturing higher-grade iron concentrate markets which recognise carbon emission reduction benefits. We expect Government policy to be increasingly supportive of processes which assist decarbonising the hard-to-abate steel sector. CIA is a dividend payer; we expect earnings to continue to support dividends.
