Have iron ore mining stocks hit their bottom yet?

By Chris Lau for Kapitall.

After falling more than 8 percent in August, iron ore prices have yet to stabilize. This is hurting iron ore miners, but makes the sector look more and more attractive from a valuation perspective. The problem is that without knowing when iron ore prices will stabilize, risks are still high.

Iron ore prices are now at five-year lows. Anticipation of weak demand from China is putting negative pressure on the raw material. Hopeful investors thought wrongly that construction activity would improve in China. It does not seem that this will happen any time soon. 

Expect higher supply

Supply for iron ore is already depressing prices, but investors should expect bigger mining firms like Rio Tinto (RIO) and BHP Billiton (BHP) will continue plans to boost output. BHP is already restructuring its business to focus on on four lines of business, one of them being iron ore.

The others are copper, coal and petroleum. It is also working on paying down its $25 billion debt. Rio Tinto boosted iron ore production in the first half of the year. This, along with cost cutting and debt reduction, helped the company report strong quarterly results. Even though prices fell 30 percent since January, Rio earned $4.7 billion in profit from iron ore.

Click on the interactive chart to view data over time.

Investors should also be cautious with Cliffs Natural Resources (CLF). The firm still has high debt and underperforming assets. Higher iron ore supply will make restructuring even more challenging for Cliffs. Unless base raw material prices improve, there could be more downside for Cliffs for a little while.

Do you think iron ore mining stocks have bottomed yet? Use the list below to begin your analysis and let us know what you think in the comments. 

1. BHP Billiton Ltd. ( BHP): Operates as a diversified natural resources company worldwide. Market cap at $172.42B, most recent closing price at $66.75. 

 

2. Cliffs Natural Resources Inc. ( CLF): Produces iron ore pellets, lump and fines iron ore, and metallurgical coal products. Market cap at $2.15B, most recent closing price at $14.06. 

 

3. Rio Tinto plc ( RIO): Engages in finding, mining, and processing mineral resources. Market cap at $99.34B, most recent closing price at $52.96. 

(List compiled by Chris Lau, all data sourced from Zacks Investment Resesarch.)

 

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Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

 

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