Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Another Nail in the Coffin of the Mining Boom

SYDNEY -- In yet another sign that the mining boom maybe over, Fortescue Metals Group (ASX: FMG.AX) has deferred the development of its Kings deposit within the Solomon mining hub, as well as the full completion of its fourth berth at Herb Elliot Port, Western Australia, until iron ore prices return to more sustainable levels.

Both Chairman Andrew Forrest and CEO Nev Power have expressed their confidence that iron ore prices will return to levels around $120 per tonne. The commodity is currently trading around $90 a tonne, its lowest level since October 2009. Just two months ago, it was trading around $135 a tonne.

As a result of the company's actions, Fortescue's capital expenditure in the 2013 financial year will fall from $6.2 billion to $4.6 billion. Staff numbers and operating costs would be reduced immediately to save approximately $300 million.

The company is also in advanced negotiations to sell its Solomon power station, and it's in discussions with two investors over the partial sale of its North Star magnetite (iron ore) project. As a result of the reduced capex, production guidance has been lowered from 86.5 million tonnes to between 82 million tonnes and 84 million tonnes.

Fortescue is among the world's largest, lowest-cost iron ore producers, so it should have the ability to ride out an extended period of lower iron ore prices. Of course, company survival doesn't necessarily mean shareholders will do well. The problems for Fortescue are the roughly $8 billion in debt sitting on its balance sheet and the deadlines for interest payments -- not to mention repaying or refinancing that debt.

Analysts have also expressed concerns over the ability of smaller iron ore producers like Atlas Iron Limited, BC Iron Limited, and Mount Gibson Iron Limited to ride out the storm; some may need to raise capital to shore up their balance sheets.

The Wall Street Journal has speculated that some of the smaller miners could be ripe for takeovers, but it would take a brave buyer to wade in now.

The Foolish bottom line

The hopes and futures of many of our iron ore miners are depending on the iron ore price to rise from these levels. The only other savior could be a fall in the Australian dollar against the greenback.

If you're in the market for some high-yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favorite income ideas. But hurry -- the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, while it's still available. This article contains general investment advice only (under AFSL 400691). Authorized by Bruce Jackson.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2004933, ~/Articles/ArticleHandler.aspx, 10/22/2016 11:50:29 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes