ASX Sell-Off: Don’t be Spooked — Good News For The Iron Ore Bulls
- Just yesterday, we were talking about how the major iron ore miners were struggling to hit their straps and keep the market supplied. We have news from two of them today.
Let’s take a look at Brazil’s Vale first. They just put out their second-quarter production figures.
Good news for the iron ore bulls — the company didn’t hit analyst estimates.
The market was expecting roughly 78 million tonnes. It got 75.7 million. Vale now has a well-earned reputation for being underwhelming.
The same cannot be said for BHP Group Ltd [ASX:BHP]. Its quarterly figures came out this morning.
The company hit record production at its West Australian iron ore segment. Full-year guidance was hit for copper, oil, coal, and nickel.
However, there is basically no forecast movement for BHP’s iron ore production over the next year.
They produced 253 million tonnes in FY21. They have guided between 249 and 259 for the upcoming 12 months.
You can see that it would only take a patchy quarter or two to throw this off base.
BHP has done an outstanding job to dance around all the issues at the moment to deliver this result and keeping costs down. Is it going to be too much to ask for them to do it again?
It’s reasonable to think so. The Australian Financial Review reports this morning…
‘Production over the past three months was 4 per cent weaker than at the same time last year, with BHP saying that labour shortages, pandemic restrictions and bad weather had curbed its productivity.’
You no doubt saw some fiery headlines about the Dow taking a decent drop overnight and the oil market taking a spanking.
Notably, the price of iron ore remains steadily over US$200.
Not only that, the Aussie dollar is looking as weak as the proverbial brewer’s droop.
That translates into higher revenues in Aussie dollars for the mining sector.
Big dividends are coming! I still see opportunity here across the whole sector.
The volatility that we’re seeing can be off-putting for some.
Generally, I see big down days, such as this morning, as opportunities to go shopping. That doesn’t mean I always get it right.
But consider what I have just told you above. The three biggest iron ore companies can’t get production up.
The iron ore price remains over US$200. And yet iron ore stocks are, like most on the ASX, red as I write this.
I don’t see any reason why I should be spooked out of my positions and, indeed, added one this very morn.
Could I be wrong? Absolutely. But the lower price on offer lowers my risk a little.
I remember reading about an option trader a while back whose whole strategy is based on the observation that stock prices are way more volatile than earnings are.
He exploits this. I’d say he’d be trading stocks in the iron ore industry right now. They are making a darn fortune!
- The same is broadly true of the gold market. Aussie dollar gold is now pushing up toward $2,500. This is a ripping price.
The problem isn’t the gold price at the moment…it’s the WA labour market.
There’s so much money and demand from the mining industry some are struggling to hit their production targets.
We’ve seen this as a common theme now, and I don’t see much solution anytime soon.
He knows all the best gold projects. Indeed, I rang him last week asking about one in the Philippines.
He brought a couple of things to my attention that I didn’t know. I decided to pass on the idea…and look elsewhere under his guidance.
Editor, The Daily Reckoning Australia
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