The outlook for Aussie iron ore is looking good with a cut in Chinese production — and a recent stock market sell-down could be a buying opportunity for investors.

The benchmark price of iron ore has edged higher this week — to more than $US66 a tonne — on declining port stocks in China.

UBS analyst Glyn Lawcock says it’s a “very healthy” price and Chinese demand for high quality iron ore is on the rise.

Despite that view, about half of the 100 or so ASX stocks with iron ore projects have lost ground over the past year.

And the six-month view is even more sombre — with only about 30 per cent of iron ore-related stocks ahead over that period.

>> Scroll down for a list of ASX stocks with iron ore exposure, courtesy of leading ASX data provider MakCorp

Woomera Mining (ASX:WML) has witnessed the biggest drop of 91 per cent since the start of 2018, while Reedy Lagoon (ASX:RLC) has slipped over 81 per cent and Indo Mines (AX:IDO) has fallen about 79 per cent.

What’s generating demand 

Analysts expect iron ore demand to be driven by improved margins for Chinese steelmakers, high coking coal prices and China’s crackdown on its polluting operations.

“I think it’s pretty clear that the Chinese aren’t going to change their view on the environment any time soon,” Mr Lawcock told Stockhead.

“China is clamping down on dirty domestic mines and a number of those dirty domestic mines are iron ore mines.

“So if you lose domestic supply it forces the Chinese into the international market more and more.”

China’s annual domestic iron ore production has tumbled from over 400 million tonnes to the low 200-million-tonne mark, Mr Lawcock says.

At the same time, the World Steel Association reported this week that China’s crude steel production was up 8.9 per cent in May and global crude steel production was up 6.6 per cent.

“So even if you have no steel production growth, you could actually get iron ore consumption growth in China because they’re cannibalising the domestic market, which is quite polluted,” Mr Lawcock explained.

The Atlas factor

Focus has turned to the iron ore sector with the recent activity surrounding struggling junior producer Atlas Iron (ASX:AGO).

Atlas’ share price has spiked 126 per cent since Mineral Resources (ASX:MIN) announced its all-scrip offer for the company. Over the past 12 months Atlas’ share price is up 230 per cent.

If Atlas iron is swallowed up by larger rivals Hancock Prospecting or Fortescue Metals Group, it will effectively see the exit of one of the few remaining junior pure-play iron ore producers from the market.

This will leave a gap in the small cap iron ore space.

Iron ore producers haven’t had an easy time of it, hence the reason the smaller players are becoming a rare breed.

The price of the steelmaking commodity bombed below $US40 ($54.18) per tonne in late 2015 – a far cry from the heady highs of over $US190 per tonne producers were getting during the boom.

This led to many players cutting production and mothballing operations, while others diversified to stay afloat.

Here’s a list of ASX stocks with exposure to iron ore courtesy of leading ASX data provider MakCorp.

Scroll or swipe for full table. Click headings to sort

ASX code Company Six-month price change One-year price change Price Jun 27 (intraday) Market Cap
WFE WINMAR RESOURCES 3.8 11 0.024 58.2M
AHN ATHENA RESOURCES 1.31578947368 0.62962962963 0.044 9.5M
ANS AUSTSINO RESOURC 1.28571428571 1.28571428571 0.016 81.1M
BCK BROCKMAN MINING 1.18181818182 1.08695652174 0.048 384.8M
AVL AUSTRALIAN VANAD 1.15789473684 1.5625 0.041 66.0M
MDX MINDAX 1 0.666666666667 0.01 7.4M
GWR GWR GROUP 0.75 2.5 0.14 35.3M
ACS ACCENT RESOURCES 0.666666666667 -0.6 0.01 1.8M
ADY ADMIRALTY RESOUR 0.571428571429 1.75 0.011 11.5M
CTM CENTAURUS METALS 0.571428571429 0.833333333333 0.011 23.0M
AUR AURIS MINERALS 0.38 0.38 0.069 27.7M
HCO HYLEA METALS 0.333333333333 1 0.008 22.4M
SFR SANDFIRE RESOURC 0.328125 0.672629695886 9.35 1.5B
AIS AERIS RESOURCES 0.32 3.34210526316 0.165 43.4M
KFE KOGI IRON 0.307692307692 5.53846153846 0.17 112.2M
ZNC ZENITH MINERALS 0.285714285714 0.714285714286 0.18 38.3M
JRL JINDALEE RESOURC 0.235294117647 0.702702702703 0.315 11.0M
TLG TALGA RESOURCES 0.232142857143 0.15 0.69 140.9M
SFX SHEFFIELD RESOUR 0.18253968254 0.405660377358 0.745 168.3M
BHP BHP BILLITON 0.12314690027 0.484194122885 33.335 165.5B
AGO ATLAS IRON 0.075 2.30769230769 0.043 399.0M
RIO RIO TINTO 0.0728758169935 0.37134502924 82.075 129.0B
SHH SHREE MINERALS 0.0714285714286 -0.423076923077 0.015 --
HAV HAVILAH RESOURCE 0.0208333333333 -0.234375 0.245 54.6M
AGS ALLIANCE RESOURC 0.010752688172 0.146341463415 0.094 9.7M
VMC VENUS METALS COR 0 0.368421052632 0.13 11.1M
CLZ CLASSIC MINERALS 0 -0.333333333333 0.004 5.2M
FMG FORTESCUE METALS -0.079107505071 -0.0677618069815 4.54 14.2B
CIA CHAMPION IRON -0.0812720848057 0.382978723404 1.3 532.3M
E25 ELEMENT 25 -0.0869565217391 0.448275862069 0.21 16.7M
SRK STRIKE RESOURCES -0.1 0.317073170732 0.054 7.8M
TNG TNG -0.107142857143 -0.137931034483 0.125 104.0M
SRZ STELLAR RESOURCE -0.117647058824 -0.0625 0.015 5.7M
CAZ CAZALY RESOURCES -0.137254901961 0.128205128205 0.044 10.4M
PEL PELICAN RESOURCE -0.142857142857 1.25 0.018 6.5M
AJY ASAPLUS RESO-CDI -0.166666666667 -0.444444444444 0.1 11.1M
ALY ALCHEMY RESOURCE -0.166666666667 -0.0625 0.015 4.9M
TYX TYRANNA RESOURCE -0.166666666667 -0.117647058824 0.015 11.4M
CZR COZIRON RESOURCE -0.166666666667 0.5 0.015 28.6M
GRR GRANGE RESOURCES -0.166666666667 0.590909090909 0.175 202.5M
MEU MARMOTA -0.181818181818 0.2 0.018 10.8M
EQX EQUATORIAL RESOU -0.1875 -0.155844155844 0.325 40.4M
DME DOME GOLD MINES -0.190476190476 -0.291666666667 0.17 45.7M
ARU ARAFURA RESOURCE -0.190476190476 0.574074074074 0.085 49.5M
BCI BCI MINERALS -0.2 0.12 0.14 55.3M
CHK COHIBA MINERALS -0.2 -0.466666666667 0.008 4.5M
SDL SUNDANCE RESOURC -0.2 0 0.004 28.2M
HNR HANNANS -0.222222222222 0 0.014 27.7M
FMS FLINDERS MINES -0.226804123711 0.744186046512 0.075 279.5M
PUR PURSUIT MINERALS -0.234782608696 -0.934032983508 0.088 7.2M
TAW TAWANA RESOURCES -0.240384615385 1.02564102564 0.395 217.6M
MIN MINERAL RESOURCE -0.24964838256 0.6671875 16.005 3.0B
MAT MATSA RESOURCES -0.261904761905 -0.258373205742 0.155 27.4M
PNX PNX METALS -0.272727272727 -0.2 0.008 9.8M
MEP MINOTAUR EXPLORA -0.279069767442 -0.215189873418 0.062 15.7M
SRN SUREFIRE RESOURC -0.294117647059 -0.294117647059 0.012 5.0M
CLL COLLERINA COBALT -0.310344827586 3.54545454545 0.1 50.0M
RGL RIVERSGOLD -0.3125 0 0.11 10.0M
G88 GOLDEN MILE RESO -0.313432835821 1.70588235294 0.46 24.6M
OAR OAKDALERESOURCES -0.322580645161 -0.25 0.021 1.4M
NMT NEOMETALS -0.325842696629 0.0169491525424 0.3 157.6M
LCY LEGACY IRON ORE -0.333333333333 -0.2 0.004 7.3M
WCN WHITE CLIFF MINE -0.333333333333 -0.333333333333 0.002 7.7M
ARV ARTEMIS RESOURCE -0.357142857143 1.57142857143 0.18 114.0M
COY COPPERMOLY -0.357142857143 -0.55 0.009 12.4M
CAP CARPENTARIA RESO -0.363636363636 0.129032258065 0.07 13.9M
ARE ARGONAUT RESOURC -0.363636363636 2.5 0.021 32.6M
PSM PENINSULA MINES -0.375 -0.52380952381 0.01 7.1M
LML LINCOLN MINERALS -0.394736842105 -0.425 0.023 12.6M
HAW HAWTHORN RESOURC -0.439024390244 0.393939393939 0.046 14.8M
HMX HAMMER METALS -0.44 -0.3 0.028 7.8M
AGR AGUIA RESOURCES -0.459459459459 -0.5 0.2 26.3M
TAS TASMAN RESOURCES -0.47191011236 -0.731428571429 0.047 21.3M
RTG RTG MINING-CDI -0.5 -0.21875 0.125 59.9M
VMS VENTURE MINERALS -0.5 0.130434782609 0.026 13.3M
NSL NSL CONSOLIDATED -0.5 -0.642857142857 0.01 35.8M
MHC MANHATTAN CORP -0.5 -0.551724137931 0.013 1.9M
CUL CULLEN RES -0.5 -0.5 0.001 2.6M
EFE EASTERN IRON -0.529411764706 -0.2 0.008 3.3M
MEI METEORIC RESOURC -0.534482758621 -0.25 0.027 15.5M
IRD IRON ROAD -0.538461538462 -0.5 0.09 71.1M
KIN KIN MINING NL -0.540229885057 -0.654178674352 0.12 30.0M
CFE CAPEAMBERT RES -0.565217391304 0 0.03 28.2M
FEL FE -0.641791044776 0.142857142857 0.024 9.6M
MGT MAGNETITE MINES -0.684210526316 -0.636363636364 0.012 8.9M
EPM ECLIPSE METALS -0.6875 0 0.005 5.7M
APG AUSTPAC RES -0.714285714286 -0.666666666667 0.002 1.8M
PNN PEPINNINIITHIU -0.752941176471 0.235294117647 0.021 10.1M
IDO INDO MINES -0.789473684211 -0.6 0.004 2.2M
RLC REEDYAGOON -0.816666666667 -0.388888888889 0.011 4.4M
WML WOOMERA MINING -0.912 -0.912 0.088 10.1M
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While Atlas is still primarily an iron ore play, it did strike a deal in March to export low-cost “DSO” lithium from Pilbara Minerals’ Pilgangoora project in Western Australia to China to help boost its earnings.

DSO lithium requires only simple crushing before it is exported, which keeps costs low.

BCI Minerals (ASX:BCI) was once known as BC Iron and also used to be a pure-play iron ore producer.

However, since the downturn hit, the company has changed its name and turned its focus to salt and potash, which it thinks can be good cash generators.

BCI’s share price has tumbled 20 per cent since the start of this year to 14c, but is up 12 per cent since this time last year.

Perfect timing for new players

There is a new entrant making its way into the junior iron ore space and it probably couldn’t have timed its foray any better.

Emergent Resources, which will eventually be renamed Fenix, is preparing to re-list on the ASX with an $8.5 million market cap.

The company is aiming to position itself as a niche supplier of high-grade products to the steel industry.

Emergent owns the Iron Ridge mine in Western Australia, which already has a resource of 5 million tonnes at 64.1 per cent iron ore.

The benchmark iron ore price is based on 62 per cent iron ore and higher grade ore fetches a much better price.

High grade iron ore of 65 per cent is currently selling for over $US90 per tonne.

Another emerging high-grade producer is Magnetite Mines (ASX:MGT), which is in the process of finalising a merger with Lodestone Equities.

The merger could be a potential gateway to early production for Magnetite with the addition of Lodestone’s Olary project in South Australia, which can potentially produce a concentrate grade of 69.6 per cent iron ore.

The Olary project lies to the east of Magnetite’s larger Razorback deposit.

The merger also gives Magnetite ownership of all the infrastructure being developed by Braemar Infrastructure.

Magnetite’s share price, however, has slipped over 68 per cent since the start of 2018 and 63 per cent over the past 12 months. It closed at just over 1c on Wednesday.

 

Stockhead is proud to use MakCorp as a provider of great value, accurate and reliable data on ASX-listed mining stocks. For more information head to MakCorp’s website.

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This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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