Iron ore rally sends mining stocks soaring
Shares in BHP Billiton and Rio Tinto were on Monday fetching their highest prices since February and March respectively, while Fortescue Metals Group has not been this valuable since May 2012.
The strong rally in the sector has come after a four-month period that was supposed to be its weakest of 2013, yet saw the benchmark iron ore price refuse to slip below $US130 per tonne.
A further rise in the benchmark price to $US135 per tonne over the past 48 hours fuelled further buying on Tuesday, and pushed Fortescue shares to $5.53 for the first time in 18 months.
Fortescue shares have rallied so strongly since they were below $3 in late June that Deutsche analyst Paul Young downgraded the stock to a sell last week on the basis that it had become over-valued, particularly when compared with BHP and Rio.
But the analysts at Macquarie, who are traditionally bullish about iron ore, wrote on Monday that Fortescue looks "considerably cheaper" than BHP based on a price-to-equity ratio.
"Despite the 80 per cent rally over the past four months, we continue to see value in FMG," they wrote.
Fortescue has a gross debt pile of $US12 billion, and the market has long debated whether the company will be able to service that debt over the next decade as iron ore prices gradually decline.
But Macquarie said Fortescue's recovery over recent months had been so strong that the debate was likely to shift to what the miner would do with its spare cash, rather than the debt challenge.
The bonanza is not confined to the Pilbara, with South Australian iron ore exporter Arrium Limited closing at $1.45 on Tuesday, after fetching less than 70¢ in June. The company formerly known as OneSteel hasn't tested these levels since the winter of 2011, when it was better known for its struggling steel assets than its growing iron ore business in South Australia.
Arrium's current rude health has vindicated chairman Peter Smedley's rejection of a takeover bid lodged by an Asian consortium just 13 months ago.
The 75¢ takeover offer was lodged when Arrium's shares were fetching less than 55¢, and Mr Smedley dismissed it as being "opportunistically timed" given a temporary slump in commodity prices.
Frequently Asked Questions about this Article…
Iron ore stocks are rallying due to a sustained increase in the benchmark iron ore price, which has remained above $US130 per tonne and recently rose to $US135 per tonne. This price stability and growth have fueled investor confidence and buying activity.
Iron ore stocks are rallying due to a strong performance in the sector over the past four months, with benchmark iron ore prices remaining above $US130 per tonne and recently rising to $US135 per tonne.
BHP Billiton, Rio Tinto, and Fortescue Metals Group have all seen significant share price increases, reaching their highest levels in over a year. Fortescue, in particular, has experienced a strong rally, with shares rising from below $3 in late June to $5.53.
Shares in BHP Billiton and Rio Tinto have reached their highest prices since February and March, respectively, indicating strong performance in the current iron ore rally.
Market sentiment towards Fortescue Metals Group is mixed. While Deutsche analyst Paul Young has downgraded the stock to a sell due to perceived overvaluation, Macquarie analysts see continued value in Fortescue, noting it appears cheaper than BHP based on a price-to-equity ratio.
Fortescue Metals Group's shares have surged to $5.53, marking their highest value in 18 months, following a strong rally from below $3 in late June.
Fortescue's gross debt of $US12 billion has been a point of concern, with debates about its ability to service this debt as iron ore prices decline. However, recent strong performance has shifted focus to how the company might use its spare cash, rather than debt challenges.
Paul Young downgraded Fortescue's stock to a sell because he believes it has become over-valued, especially when compared to BHP and Rio Tinto.
Arrium Limited has benefited from the iron ore rally, with its share price closing at $1.45, a significant increase from less than 70¢ in June. This recovery has validated the company's decision to reject a takeover bid last year.
Macquarie analysts see Fortescue as 'considerably cheaper' than BHP based on a price-to-equity ratio, and they continue to see value in FMG despite the recent rally.
Arrium Limited rejected a 75¢ per share takeover bid from an Asian consortium, as chairman Peter Smedley deemed it opportunistically timed during a temporary slump in commodity prices. The recent rally has vindicated this decision.
Fortescue has a gross debt of $US12 billion, and there has been ongoing debate about its ability to service this debt as iron ore prices decline over the next decade.
Future challenges for iron ore companies may include managing debt levels and adapting to potential declines in iron ore prices. Companies like Fortescue are focusing on how to utilize spare cash effectively amid these challenges.
Arrium Limited's stock has closed at $1.45, a significant increase from less than 70¢ in June, reaching levels not seen since 2011.
The current iron ore market is experiencing a strong rally, with prices and stock values reaching levels not seen in over a year. This contrasts with previous periods of volatility and lower prices, highlighting a period of growth and investor optimism.
Arrium's chairman, Peter Smedley, rejected a 75¢ takeover bid from an Asian consortium, considering it opportunistically timed during a temporary slump in commodity prices.
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