Iron Ore prices surge into Chinese New Year: Vale SA (ADR) (VALE) and More

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Rio Tinto is all over the planet and has made some big mistakes recently. The CEO just stepped down with the $14 billion writedown of the failed $38 billion 2007 buyout of Alcan and the failed a coal mine in Mozambique of late. In the scheme of things the writedowns are minor. That said, they have a very cheap stock price and stand to profit from their 250 million tons a year of iron ore production in the Pilbara in Western Australia.

BHP, like Rio, is big and all over the planet digging up and selling minerals, metals and diamonds. They have the highest market cap of all of the big four, which may not be justified, as they seem over-priced for the sector. I am less excited about the prospects of this company. They look like they are running scared. BHP has put development plans on hold when the going got rough, shelving $50 billion in development projects in the last year. They have been pulling in their resources like the world is going to end next month. On the other hand, they are on track to raise their iron ore production in Pilbara from 180 million tons a year to 220 million this year, and we should see a good rise in iron ore profits here.

Fortescue is the only pure iron play and is set to scoop up the profit from what looks to be an extended top in iron ore pricing. Fortescue is on track for their huge expansion projects expected to come to full fruition. In January they announced hitting the 100 megaton run rate and are set to hit their ultimate goal of 155 megaton run rate in December of this year.

The earnings reports this spring, as well as in April and May, should give a bounce to all of the big four iron miners. The greatest rise in stock price will hit Fortescue Metals. They grossed $6.63 billion in fiscal year June 2012 with a 23% profit margin. At their current run rate and at these iron prices they should be grossing $1.2 to $1.3 billion a month. The profitability should be amazing. Financing is in place to finish infrastructure for hitting their goals by year end. I believe Fortescue is perfectly positioned to take advantage of these high iron prices.

The article Iron Ore prices surge into Chinese New Year originally appeared on Fool.com and is written by James Coffman.

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