all eyes on iron ore

All eyes on iron ore

Kate Hayc#ck
Tuesday, 19 June 2007

IRON ore plays have moved from strength to strength this week as share prices continue to be bolstered by surging demand from China, with iron ore major Rio Tinto becoming the first Australian company to see its share price hit $100 since the Poseidon bubble almost 40 years ago.



During yesterday's trading session, Rio Tinto's price rose to a high of $100.09 before closing at $99.99.

In morning trade today the major's shares had slipped again to $98.76.

Rio's ascension past $100 has been greeted by analysts as a sign of the continued strength of the mining boom, with some predicting that the major's share price would continue past the $100 mark easily.

Analysts at ABN Amro, for example, have a target price for Rio of $103.30 a share. Goldman Sachs JBWere, meanwhile, has a target price of $89.82/share on the miner.

While Rio has a finger in numerous commodity pies, the major's iron ore business is an integral part of its profits, second only to copper.

The company handed down a $9.61 billion profit for 2006.

Additionally, Rio's recent share price rise has no doubt been aided by news last week that it was considering a 50% increase to its iron ore operations to eventually produce between 300 million tonnes and 320Mt of iron ore a year.

The company is already on target to reach its expansion goal of 220Mt by 2009.

And the future is continuing to look bright for iron ore, with analysts flagging a continued bullish run into the medium term.

"There's enough sentiment behind it and enough push behind it that people are now factoring in a price increase next year, and whereas there was a price decrease factored in, a 5 percent drop, now they're factoring in a 5-10 percent increase again," Hartleys resource analyst Andrew Rowell told MiningNews.net.

"Even if you work on a drop the following year of 5-10 percent, you're still bringing it back to this year's prices.

"So we're not seeing any real evidence that there will be a 20-30 percent drop to bring it back to the prices we saw a couple of years ago.

"And if it is going to ease off, it will be more of a flattening, and a slight easing, rather than sharp decline.

"There just doesn't seem to be any evidence out there for a big correction in the short term."

Rowell also said iron ore was looking bullish and more stable in comparison to other more volatile commodities such as nickel, with the pricing structure of iron ore allowing for more certainty for revenue streams as Chinese demand showed no signs of slowing.

So far, the best performing iron ore play over the past 12 months on percentages has been Murchison Metals, which has seen its share price increase some 750% over the past year.

It is currently trading at around $4.93 after being boosted by yesterday's news of a deal with Mitsubishi.

Fellow Mid-West focused play Midwest has seen its share price boosted by 695% to around the $3.26 mark, while Fortescue Metals Group has gained some 377% to around $35.