Profits smashed if iron ore stays at $110

From UBS, here’s what they reckons happens to major miners if the iron ore price stays where it is:

Summary findings: BHP & RIO earnings -20% and -30% in 2014E at spot
Diversifieds: All else remaining equal, our BHP & RIO earnings estimates for CY 14 would be -20% and -30% (prev. -18% and -28%) respectively under a spot scenario. Nevertheless, RIO would trade on cheaper spot multiples at 11.9x CY 14E PE vs BHP at 14.0x CY 14E. Iron ore: The spot iron ore price is 15% below our CY 14 forecast, and implies a 24% downgrade to FMG’s FY 14E earnings (prev. -23%) and -60% to AGO (prev. -57%).

Crushed miners and budget. Yet, the equity market has discounted none of it:

Trading on faith in Chinese communists. Love it.

Share

About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.