CEO’s, investors finally working it out. Margin squeeze. Could Atlas need a bailout?
On December we explained that just as Gerry Harvey needs to sell more plasma tvs at deflated prices to generate the same profit because of margin squeeze, the same laws of arithmetic would apply to miners of ore and coal.
It’s not difficult to imagine a world where a company like Atlas Iron ore (AGO) will need a bailout!
One of our brokers wrote to us today;
“Big downgrades to our FY13 expectations are coming. On our estimates for FY13 and against market consensus we believe there could be downgrades to NPAT estimates of 31 – 96% for the producers”
It comes from the same analyst that told us to buy mining services businesses in April.
You might recall Vale’s massive June quarter slump. Aussie market investors seem to be in denial or just hoping for iron ore price to bounce. Neither strategy preserves retirement savings.
Stay tuned.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Liz Barrett
:
There have been warning signs from Chinese steel mills for a long time re profitability, excess production, rationalisation of their existing plants, and payment problems with their customers. With the spiralling costs of mining exacerbated by long development timelines – including approvals, equipment supply, spiralling labour costs, and infrastructure needs – many miners will be worried about their cash position. As well China now has a much more rigorous project review process for investment funds because they too have been caught with massive cost blowouts in AU with both their own ventures, and, JV’s. I guess we’ll have a clearer picture in the new year when the government transition of power is done.