The Iron Ore Slump’s Effect On Small Mining Companies

By We Photo Booth You

The drop of the iron ore price from a two-year low to a five-year low happened as fast as a wildfire spreads. Regardless, big Australian miners like Rio Tinto and BHP Billiton are pushing the limits at their iron ore mines, producing more ore than ever. The big companies can still make a profit in this low period, but what about the smaller companies?

For small and medium-sized Australian exporters of the commodity, the 15-week slump streak is causing their operations to reach the break-even level. Bigger companies like BHP Billiton have lower operating costs; even though the price of iron ore is hovering around $A89 a tonne, it only costs the company around $US40 per tonne, meaning there’s still a profit to be had.

Western Desert Resources, operator of the Roper Bar Iron Ore Project in the Northern Territory, appointed the advisory firm KordaMentha as voluntary administrators on Friday. This decision came on the heels of a failed appeal to Macquarie to renegotiate funding operations for Roper Bar, as no further support would be available. 

The company’s failure is also leading to hardships for the engineering group Thiess, which was contracted to work with the Western Desert Resources until January 2017.

Iron Ore Holdings owns and manages a diverse portfolio of iron ore projects in Pilbara. The ASX-listed company is looking down the barrel of a takeover from BC Iron, but the deal may be terminated if the price of iron ore falls below $90 a tonne for 20 consecutive days. With the price at $A89.14 on Friday, the clock has started on this stipulation.

Other companies like Atlas Iron, Grange Resources and Mount Gibson are experiencing marginal profits at the current iron ore prices. For example, Atlas’ break even cost of production is around $US82 a tonne. To counteract low expected profits, the company has committed to reducing costs by $80 million in the 2015 financial year.

Many investment banks believe the hardships will continue: iron ore prices are not expected to increase for the next two months. The big miners will be fine—hopefully the small and medium-sized organisations can hold on through the tough times.

Information sourced from The Sydney Morning Herald.

Share

Featured Articles

Hybrid live event shaping the future of Sustainability & ESG

Sustainability LIVE London returns for a two-day, multi-track conference programme featuring inspirational ESG speakers, debates and discussions

Nine must-attend sustainability events for business leaders

From London to Abu Dhabi, Singapore to San Diego, these sustainability-focused events are designed to help business leaders action their ESG goals

Daniel Weise of BCG on new supply chain and procurement book

Daniel Weise, global leader of Boston Consulting Group’s procurement business line, on the timely publication of his new book, Profit From The Source

Attract and retain talent with flexible working and benefits

Human Capital

Nurturing the next generation of women leaders in Africa

Leadership & Strategy

5 Mins With: Cybersecurity expert Ariel Parnes of Mitiga

Technology