There goes the iron ore miner rally. Credit Suisse has abandoned its support of iron ore juniors.
AGO:
Our AGO valuation has been slashed due to the fall of the iron ore price and expansion of quality discounts. Credit Suisse revised iron ore price forecasts are 7-9% lower, expecting an $85/t trough from JunH’15, and we have lifted our quality discount to 12% (from 11%), imposing a $15/dmt price discount for Atlas Blend. The twin impacts reduce revenue by ~15% and EBITDA by 60%. Cash outflow needs to be controlled so we assume dividends will be cut and have removed Corunna Downs mine from our model. We reduce our target price to A60¢/sh (from 90¢/sh). The share price has retreated, but we expect iron ore price fears will continue for the next 12 months, and AGO’s slender cash margins will leave it vulnerable to negative sentiment. We downgrade our rating to UNDERPERFORM (from Outperform).
ARI:
Material earnings and value downgrade driven by lower iron ore price assumptions: CY15F US$89/t ($95/t), CY16F US$87/t ($95/t), CY17F US$90/t ($95/t), LT US$90/t ($90/t), that also reduces the steel segment earnings forecast, and a reduction in mining consumables tonnage forecast to reflect continuation in FY15 of the weaker 2H FY14 rail wheel and mining rope demand guidance. Scrap and distribution remain immaterial. Valuation: NPV/target price reduces to $0.61 (from $1.25) and balance sheet concerns are again elevated. Our rating changes to UNDERPERFORM.
And the big one, FMG:
The double punch of a falling iron ore price and an expanding quality discount has led us to cut our FMG valuation. Credit Suisse’s new iron ore price forecasts are 7-9% lower, looking at an $85/t trough from JunH-15, and we have lifted our quality discount to 12% (from 10%), imposing a $14/dmt price discount for all FMG’s products. The twin impacts reduce revenue by 10%, EBITDA by 25%, and FCF by 45% in FY15E and FY16E. We reduce our target price to $5.00 (from $7.00). The share price has run ahead of our downgrade on the street’s expectation of still lower iron ore prices, and we expect these concerns to continue for the next 12 months. With this environment, we cannot see any catalyst to lift the share price, so we downgrade our rating to NEUTRAL (from Outperform).
As I said recently, CS has been producing the market leading iron ore analysis for years but for whatever reason drew completely the wrong conclusions for equities. The sector is down across the board this morning despite the favourable ore price movements.
Source: Macrobusiness