MikeMennel, feel free to rant on CAP if you like. I own that stock and put up a few pointers last week about how iron ore forecasts would impact on that stock.
The way I see it is this.
Iron ore prices are set to fall quite steeply over the next four to five years, but the analysis to depict an exact target is quite convoluted. For example, the out-and-out IO bears reckon $60/t is headed our way, while a culmination of ten analysts agreed on an average price of $120/t in 2015 for 63% IO fines (see CAP thread for article).
Personally, I think we are going to end up in the middle ground, with prices falling about 40%-50% by 2015, which would have us at around $80-$90/t for 63% Fe fines. What we have to remember is that quite a few of the ramp up projects from the majors are being delayed with environmental and logistical issues and thus the seaborne supply surplus might not end up being as high as some are expecting it to be. Furthermore, a high percentage of forecasts for IO are anticipating a decline in growth in China. Now this is all well and good to speculate on if you want to be conservative, but such a possibility isn't set in stone by any means. I'm not an expert on the Chinese economy, but if it continues to grow at $6%+pa then I think you'll find that the seaborne surplus once again won't be as high as many are predicting it will be.
Prices will fall, of that there is no denying, but you will find that the low cost producers and developers will be able to weather the storm. The ones that will really get hurt are those whose DSO OPEX is $60+ per tonne, or the magnetite producers who will be operating at north of $80/t. If a company is under that threshold, then they should be able to look forward to long term profitability provided something catastrophic. If I recall correctly, both AGO and FMG fit that bill.
