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Iron ore sector consolidation set to continue
Production and Markets

Publishing Date13 Sep 2011 3:21pm GMTAuthorMining Journal
Analysts at Investec told attendees at a London conference on Tuesday that consolidation would likely continue in the iron ore sector in future.

Speaking in a joint presentation at the Investec Iron Ore Conference, analysts Tim Gerrard and Hunter Hillcoat spoke of the large profits being made by Australia's largest producers, while also highlighted the upcoming new production from West Africa.

This year BHP Billiton and Rio Tinto's Pilbara iron ore operations are expected to make a combined US$24 billion after tax profit according to the analysts.

They added that the companiess researched by the team all showed deep value even with the longer term consensus price estimate of US$70/t, compared with current spot price levels of more than double that.

In addition the analysts said those up and coming producers that get into production sooner will have a competitive advantage over the other most likely, probable and possible pipeline of new projects and expansions expected over the next decade.

The big guys are accelerating as quickly as possible to squeeze the new guys out, said Mr Hunter.

In West Africa three new producers are expected to come on stream this year. Corporate activity is expected in the region as projects begin to start up as incumbent producers become more predatory and potential exists for larger companies to come after them, added Mr Hunter.