End game - lowest cost wins, page-26

Agreed that rio is the one to own in the iron ore space, closely followed by bhp. I just topped up again at 43.20. I've slightly underestimated just how long the higher cost producers can hang on. AGO is a basket case and yet is looking set to get bailed out for the second time over the last 9 months (first time by shareholders and contractors, second time by debtholders) to hang on for a bit longer. BCI has closed one of their mines, but still "hanging on by their fingernails" as SW put it for their other operations, although I suspect they can't last much longer. So the supply side is stickier than I thought, but still the mine closures have started and will continue to happen for the next couple of years. FMG have until 2019 for their next debt repayment, they will be an interesting case to observe. However their ability to make the repayment will get closely looked at in the 2018 FY accounts, for the going concern considerations. Still a lot can happen in that time, they may sell an asset or raise capital. I wonder though the reluctance of a capital raising for fmg, does their chairman have the financial capacity to participate in a significant capital raising, being such a big shareholder? Companies like mgx and ari will also eventually have to mothball production if prices stay where they are, although they can survive a little longer than the likes of bci. Chinese production will be reducing already and continue to do so over the next couple of years.

I will continue to accumulate rio over the next few years as this plays out. I can't predict the turning point so like to average in over a substantial period of time that I think is close to the turning point. When it does turn it will probably be a gradual grind upwards so will continue to accumulate for several years. A scenario in a few years where iron ore is US$60-70 per tonne will see Rio make exceptional profits with their lowered cost base, but would not be high enough to attract new entrants. I can see Rio (and bhp) gaining market share for many years to come in this space.