Analysts at Citi Bank have stated that BC Iron (ASX:BCI) should prepare to cut all iron ore production in Western Australia. The recommendation by the US-based bank was in reference to falling commodity prices that have been putting pressure on miners such as BC Iron. In the case of iron ore prices falling even further, it would be in the best interest of the company to cease production to save cash, Citi says. Earlier this month, the company said its all-in cash cost per tonne was between A$53 and $57. Although the commodity price rose to A$64.32 per tonne overnight, analysts are predicting iron ore prices will continue to fall. Citi is projecting the underlining price per tonne to reach $US37 (A$48.74).
Citi has also targeted other miners in its reports. The bank no longer has a target price for Atlas Iron (ASX:AGO), which has suspended its shares from trading. Given the low liquidity of BC Iron’s shares, Citi has also removed its target price for the stock. The US bank has concurred with other analysts in blaming BHP Billiton (ASX:BHP) and Rio Tinto (ASX:TIO) for causing excess supply of iron ore during a period of low demand. The bank now no longer suggests to investors to purchase shares of BHP and Rio Tinto. In recent news, Standard and Poor’s placed both companies on a list of miners who are facing potential credit downgrades. Analysts at Citi believe the future of iron ore is uncertain. But for miners such as BC Iron, adequate steps must be taken to prepare for further decreases to commodity prices. "As a short-life, high-cost producer, we believe BC Iron should shut down production to conserve cash at our price forecasts," analysts for the bank said.
Author: Simon Herrmann
Apr 14, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.