change in fortunes!, page-6

Stories like this in The Australian don't help. I doubt whether the UBS Analyst has done his homework properly.

"He said Grange Resources was expected to lose money, but earnings were difficult to estimate while it was in ramp-up mode and costs were capitalised."


http://www.theaustralian.com.au/business/news/iron-fall-to-hammer-junior-miners/story-e6frg906-1226924593631#

Iron fall to hammer junior miners
ANALYSTS expect the junior end of the market to be hardest hit by the recent slump in iron ore prices, with some expected to face up to 40 per cent lower earnings this year.

UBS, which has lowered its iron ore forecasts for this year by 9 per cent to $US111 a tonne, expects Atlas Iron’s earnings this year to decline 29 per cent, while Grange Resources would be hit with a 40 per cent slump.

UBS analyst Glyn Lawcock said that after the unexpected decline in the iron ore price, equities had already retreated as much as 35 per cent from their highs at the start of the year and as much as 20 per cent in the past month.

He said Grange Resources was expected to lose money, but earnings were difficult to estimate while it was in ramp-up mode and costs were capitalised.

Atlas Iron managing director Ken Brinsden said the malaise in iron ore markets was driven by the introduction of new supply across a relatively short period.

“As a result, it takes a while for those tonnes to find a natural home, and whilst that process is unfolding, the buyers have a few more options,” he said.

“I see that as being a relatively short-term phenomenon. Stability will return when those tonnes find a home.”

Mr Brinsden said the company continued to view the iron ore market as volatile. The challenge was to set up the business to deal with the constraints that emerged on the downside, but ensure it could take advantage of an eventual improvement.

The head of the Perth-based iron ore miner said while steel production growth in China might be more modest than it had been in the past seven years, it was still growth.

“The reason we see that demand being quite strong is that there are still significant chunks of high-cost domestic production in China that ultimately should not be in the market,” he said.

“It’ll take a long time for seaborne trade to have grown enough to completely displace it.”

The iron ore price slumped below $US100 a tonne on Monday night for the first time in two years, dipping to $US98.50.

The last time the price went below $US100, Fortescue Metals was the main casualty. The Pilbara miner had to lay off hundreds of workers and rein in expansion plans because of a huge debt burden at that time. But two years later it is a different story for the third force in iron ore, whose share price lifted yesterday on the back of an increase in its resource base at its Greater Solomon deposit.

Credit Suisse analyst Matthew Hope said the market had been through these iron ore price shifts in the past. “In the past the price falls, overshoots, rebounds and then stabilises,” he said.

Mr Hope said while the iron ore price had been grinding lower, a sharp price collapse was unlikely as mill stocks were low, at about the same level reached in the mid-2013 sell-off.

“Mills probably can’t cease buying while they are destocked. In any event, short-term price moves are not important. It is sustained prices that matter,” he said.