TOP IRON ORE PRODUCERS – AUSTRALIA.
Written by: Robert and Russell Markham
Australia, the world’s biggest iron ore miner, currently mines 25 billion tonnes of iron ore a year. Iron ore is the most used alloy in the world as noted on the Rio Tinto website according to the World Steel Association. Australia owns approximately 30% of the 170 billion tonnes of the world’s forecasted reserves. The mining sector last year contributed 9.5 percent of Australia’s 1.7 trillion GDP (Australian Financial Review) – with iron ore accounting for the largest percentage of all mining related export revenue, making up our biggest export revenue!
Why the significance of iron ore? To answer that, I found a great quote:
“Iron is the world’s most commonly used metal, and iron ore is a key ingredient for steel making. To produce 1,000 kilograms of crude steel requires about 1,400 kilograms of iron ore (and around 800 kilograms of coal). Iron can be alloyed with a variety of elements to produce stronger and harder products which are useful in the construction industry and in the manufacture of motor vehicles, ships, trucks, pipelines, trains and railway tracks.” https://www.dmp.wa.gov.au/Investors/Iron-Ore-1482.aspx
This got me thinking. What are our biggest iron ore producers and exporters in Australia? We have put a new WatchList in the Commodities group in VectorVest for you entitled: Iron Ore. I have listed 49 in total. But please be aware, these are all the companies that have some connection with iron ore, whether it be in Australia or offshore. However, for today I am after our top exporting iron ore companies for Australia to analyse. The top 3 producers in Australia currently are: RIO.AX, BHP.AX and FMG.AX. I wanted to take a closer look at each company.
To start with, I found some recent information on the expected 2020 final iron ore exports for these 3 companies: RIO.AX is on track to export over 320 million tonnes of iron ore this year, BHP.AX to ship just over 290 million tonnes and FMG.AX to ship just over 175 million tonnes. This can change from different sources that you may read…the final numbers will be in the financial reports when they are available. Rather than spend too many hours forecasting the final numbers, you can see that RIO.AX is our leader in terms of exports, followed by BHP.AX and then FMG.AX.
Of the 3 companies this year so far, FMG.AX has been the standout performer. If I run a QuickTest on all 3 companies, I get the following (2 January 2020 to 8 December 2020):
FMG.AX up over 99%
RIO.AX up over 13%
BHP.AX up over 8%
What about the iron ore price? For any of you that have been watching the iron ore price over the years…it has been a wild ride. We hit the dizzy height of over $190USD a tonne in March 2008 – then the spot price crashed all the way down to $63USD per tonne in March 2009…then raced back up to $180USD per tonne in 2011 and then crashed all the way down to $43USD in January 2016…and from there it has been a steady increase. The price as of 1 January this year was at $92.00USD and has powered all the way to over $140USD per tonne currently, for a total of over 52% for 2020. Here is a great link that goes back since September 2007 for iron ore prices: https://tradingeconomics.com/commodity/iron-ore
Looking back across our three companies, FMG.AX has more exposure to iron ore relative to BHP.AX and RIO.AX. FMG.AX effectively has all of its earnings from iron ore, whereas BHP.AX has around 70% of its earnings tied to iron ore and around 80% for RIO.AX. FMG.AX is heavily dependent upon iron ore production and prices. If iron ore prices were to crash again…this is going to impact FMG.AX more so that BHP.AX and RIO.AX.
I see that FMG.AX now has approval to increase iron ore exports by 20%! If iron ore continues to hold up, this could really drive those earnings higher. The new capacity is expected to hit 210 million by 2025 up from around 175 million currently. Assisting with the increased output in 2022 is the Iron Bridge Magnetic Project – a $2.6 billion project. You can read more detail by clicking here.
I have put together a short video to take a closer look at BHP.AX, FMG.AX and RIO.AX in VectorVest. We will run the numbers and look how these 3 stocks have benchmarked against each other over the last 5 years. Very interesting analysis…so if you get the chance, please CLICK HERE to watch the video.
On a final note:
I found the Western Australia iron ore profile for October 2020 most useful should you wish to research further. Some very interesting statistics in the report. Of particular interest in the report is the fact that Western Australia has one of the most competitive cash costs of shipping iron ore in the world – per page 2 of the report. Lower costs…higher profits. Here is the link to this interesting report:
In addition, per my research this week, I have noted a few more links of interest on iron ore:
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