Hi @tomboy (TB) –
Keep in mind that I’m more of a macro guy in general, rather than an iron specialist. Also, I haven’t been following the iron story over the last 2-3 weeks after my FMG comments. I’ll try to answer your questions nevertheless. You qts are in bold and italics below. I’ll give some references to my FMG analysis as that was more of a iron ore macro analysis too, and I probably explained the issues much better there.
“So ozpolarbear,
if you have been so accurate re IOP whats the view right now?” – TB
http://www.copyright link/business/...ldman-still-sees-lower-prices-20150728-gimjl3
Just checked and not much of change in story. Big boys like Goldman are still bearish.Expansion does not seem likely to stop. Like I mentioned in FMG comments, stopping of expansion by RIO and co. seems highly unlikely when Roy Hill is yet to commence. The article above also indicates that expansions are not going to stop.
From time to time, US dollar index fluctuations affects commodities. Keep that in mind.
“IOP moved up 2% tnt to 53.50 or so, like opper or oil seems to rise when equities do mostly”. – TB
Actually, this was one reason why I escaped the iron bear market. Iron seems to follow the broader equity market generally. Oil does not necessarily follow equities as things like Middle East conflict, war etc. can lead to spike in oil prices while equities get hammered. Iron generally seems to follow equities. Since I have a far more bearish outlook on equities in general, I stayed away from iron
“What about the production topout at vale, rio, fmg?” - TB
RIO and the other big boys have shown no sign that they are going to curb expansion. IMO, they will react to the supply of iron in the market and like they said, they are aiming to ensure that they retain their market share. So with Roy Hill still due to come, any move that they take IMO will be based on the supply situation after that.
“China restock period H1 oct or increasing chinese imports from oz n brasil producers?” - TB
Can’t comment much on this. China has it own way of functioning and much depends on what the government decides at that point of time. Anyone also following the gold market will know what I mean with bizarre conflicting signals being received in recent times.
“Also
You bought AGO last year n mondat at 3.7c.out of all these stocks why AGO n not RIO et al?” - TB
I was closely observing the iron ore miner prices since around May - June last year (I was monitoring FMG even earlier). I saw AGO go down from 80 all the way down along with the other miners. On Monday, seeing AGO (a very well known stock) fall by 70% in 1 day was too much of a temptation to resist. Sometimes, massive falls can also result in quick 20-30% gains in the form of dead cat bounces. It was more of an impulsive buy actually, without thinking. But I sold it within an hour. Bought at 3.7 and sold at 3.8.
“Whats your view on AGO now?
you say costs, debt, cash is key .....when hasnt it been? AGO addressed all of these matters during TH, except debt is due 2017, may try to refinance like FMG did in 2013. Costs way lower, cashburn looks ceased perhaps...” - TB
My FMG / iron ore analysis was more a part of my day to day macro analysis. I haven’t analysed AGO in full detail and to be fair to AGO investors, it would not be appropriate for me to comment on the finer aspects of AGO. But when analyzing FMG, I used to regularly stumble on info on AGO, BCI, ARI, MGX, etc. and hence do know a bit about all and sufficient to know that the FMG analysis might also be a good template for most of them.
All of them have the same cost issues as FMG compared to RIO and BHP which are miles ahead.
We just saw how important cash and debt are – as the price crashed from 12 c to 3c.
I note that AGO wanted to raise 180 million $ but could only raise half of what it wanted
http://www.abc.net.au/news/2015-07-...-trade-resumes-after-april-suspension/6650232
So there would always be fears of further cap raisings.
AGO has recently had closer relations with contractors and that might help to cut costs to some extent in future. As mentioned there, its contractors were required to purchase $40 million worth of the new shares as part of the deal to lower their rates and they now collectively own more than 35 per cent of the company. So this is a huge plus that we would have contractors with skin in the game.
Debt is still an issue. $270 million (USD and not AUD apparently) in some years could pose an issue still, and especially if USD remains high. AGO probably needs the USD to fall badly as that will not only lead to higher commodity prices but also less debt impact.
“Shorts attacked several times at 3.3 over 2 days n today got to hold there on much lower volume than monday. More buyers again. If it flatlines n stops dropping that will bring speculaters n buyers out perhaps?” - TB
Of course, there could be speculators. Even a hardcore iron bear like me impulsively ended up buying AGO on the 1st day, and I was tempted yesterday too. As the article says, AGO is highly leveraged to iron price right now.
Conclusion –
A very important thing to keep in mind is the length of the bear market. Gold has been in a bear market since around 4 years now. A direct consequence is multiple legs of falls for gold around 1600, 1400, 1200 and now 1100. With each leg, there was a new capitulation. So of course, such a thing could happen to iron if iron stays in the 40s for a prolonged period or possibly enters the 30s.
Even if there is no capitulation and no multiple legs, it is the pressure that is created as investors, financiers etc. shy away from the sector.
One of iron’s best bets IMO would be US quantitative easing QE4 / hit of US dollar, etc which could cause commodity inflation. There are still a lot of negatives, though.
I’ve explained all this in much more detail in my FMG analysis; so I’ll probably stop here. I've also done a RIO analysis to see the opposite side of the story.
Keep in mind again that I'm not an iron specialist but a macro guy and of course I can be wrong; so please DYOR thoroughly. Also, I'm more longer term oriented generally and my comments rarely have any bearing on the day to day / short term fluctuations.
All the best to you guys and I hope you take the right decisions. Cheers
Hi @tomboy (TB) – Keep in mind that I’m more of a macro guy in...
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