The savvy yabby (or, how I “know” when to adjust iron ore...

The savvy yabby (or, how I “know” when to adjust iron ore exposures)
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The iron ore futures price's pause for breath around US$100 dollars a tonne has left the market hunting for clues on the direction for the iron ore complex. The majors may well be finding their feet with support around the cost of entry, but the juniors in the complex likely have some rough sledding ahead of them.


The story is different for the marginal producers such as Mount Gibson Iron (ASX: MGX).

This stock fell very sharply on falling iron ore, due to the higher marginal cost of production. The cost basis is significantly above the present price. A good rule of thumb for bear markets is that the selling pressure usually starts to abate at around a -40% unrealized loss. The ratio to apply is therefore 0.6x times cost basis. That figures, in this case, as current price is around 0.6 times $0.70, or $0.42.

Finally, we have my personal favourite Grange Resources (ASX:GRR).

This screened up as one of the better value stocks in our universe. You can see that we are a long way from a cost basis, so we may have a bargain opportunity in the offing. This setup is the reason I named the indicator I used "the savvy yabby". It lies in wait for tasty morsels.


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