3 Ways to Play the Iron Ore Rally

Masam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

My previous report on iron ore players was focused on those Canadian players that have been neglected by the investors. This time around, I have pulled out another set of three iron ore players from my equity knowledge that have received little or no interest from investors’ end. And it is interesting to note that two of the three players are reporting for the first time in this earnings season.

Northland Resources

NR is expected to start reporting sales in MarQ13

NR railed its first production to the port of Narvik in December 2012 and is expected to load its first shipment to customers in JanQ13. As such, the Street is not expecting any sales figures for DecQ12. The Street is targeting DecQ12 loss per share of $0.10. However, given the recent rally in the iron ore prices, the company is expected to top the EPS estimate. The loss is expected to be $0.05 per share. Going into DecQ12 earnings, investors look forward to 2013 company guidance update on

i)  Production numbers (estimate for FY13 is 0.95mt) and

ii) Sales estimates (estimate for FY13 is 0.95mt)

New Millennium Iron Corp (NASDAQOTH: NWLNF)

NMI is expected to start reporting sales in SepQ13.

We are targeting DecQ12 EPS of $(0.06)/sh (relative to consensus ($0.03)/sh). With a growing stockpile of DSO material (estimated at 0.3mt) accumulating at the mine site, we expect NML to provide an interim port solution until the new multi-user dock at Sept-Iles is complete. Key themes for the results are likely to be i) 2013 sales guidance and ii) comments on the Taconite Feasibility Study. We believe the market may currently underappreciate NML's story as a junior producer, comparing it to LIM despite the 2 operations being very different from an engineering/cost point of view

Labrador Iron Mines (NASDAQOTH: LBRMF)

LIM reported that it had sold 3 shipments in DecQ12 worth approximately $23 million.

The Street is looking for DecQ12 loss per share of $0.18 and estimates cash cost for the quarter of $63.76/ton. In the short term, it is estimated that LIM needs an iron ore price of US$128/ton to remain profitable. However, in the long run, LIM needs an iron ore price of US$120/ton. Benchmark iron ore prices registered a +4.5% increase in the last quarter of the year. Moreover, they have been on continuous trot since the start of this year. At one point in time, the iron ore price crossed the $170/ton mark. According to steel guru, iron ore prices will average $130/ton for 2013. This claim has sent bullish signals to the market.  

Foolish Bottom-Line

Given the recent surge in iron ore prices, all these three players must have benefited given their heavy exposure to this commodity. Such a rally is normally expected in the last quarter of the Calendar year, given the restocking cycle at Chinese steel mills and ports. Though, this rally is not considered to be sustainable, this time around, Goldman Sachs and steel guru have claimed that the iron ore prices may not crash to the same low levels as at the start of September 2012, from where they picked up.

It is not always necessary to invest in big stocks in order to benefit from a positive trend in a commodity. Investors should look around for other investment options as well that can surely provide equally lucrative returns if not more.


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