Iron ore producers feel the heat from lower prices

By Sue Lannin

Gindalbie’s project has been beset by production delays and cost blowouts and it announced a $640 million writedown on the Karara project earlier this month because of the fall in the iron ore price and higher than expected Australian dollar.

But that is not as big a concern for BHP Billiton or Rio Tinto because their cost of production is around $US40 to $US50 a tonne, although the iron ore price falls have hit the share prices of the miners.

Despite the price decline, Atlas Iron returned to profitability in the 2014 financial year with net profit of $14. 3 million as it expanded mine production to a record of nearly 11 million tonnes for the year.

The spot price of iron ore fell to $US87. 30 a tonne this week as Chinese house prices dropped, reducing the demand for steel.

At its profit results briefing this week, small WA producer Atlas Iron‘s chief executive said the company’s break-even price was around $US80 to $US85 a tonne.

“I wouldn’t be rushing to revise up estimates of the budget deficit just yet, although obviously if iron ore prices do continue on this trajectory or indeed don’t rebound to something in the mid-$90s, then all else being equal the Government will run a bigger budget deficit this year than it had been expecting,” he told the ABC in an interview.

That figure was closing in on the $US86. 70 reached in September 2012 and came on top of prices dropping by more than one third this year due to a global oversupply of iron ore and lower steel prices.

China‘s CITIC said it made a first-half loss of $138 million on its Sino Iron project in the Pilbara because of production problems and higher finance costs.

Miners like Fortescue and Atlas usually receive lower prices for their iron ore because it has a lower iron content than the ore produced by BHP Billiton and Rio Tinto.

Read more here: ABC


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