Did we hear that right? The iron ore prices have thumped up the impetus for these two resources blue-chip stocks, BHP Billiton Ltd (up 20.48%) and Rio Tinto Ltd (up 19.25%) in last three months. The stock prices of these two miners otherwise had been dancing up and down to the tunes of falling commodity prices of the recent past, adversities at respective mines and projects, and concerns over dividend pay-outs owing to softness in financial performances.
We have earlier noted that BHP had reported an immense fall in the underlying attributable profit (of about 81%) in FY 16, at the back of the Samarco dam failure, the Onshore US impairment and certain ongoing global taxation matters. The group also trimmed its interim dividend by 75% to 16 cents, which was below market’s expectation. Similarly, Rio Tinto is also seen to be bitten by the bribery scandal at its Simandou project and has axed two of its top executives over payment issues. On the other hand, RIO is trying to take its hands off the project as it signed an agreement with Chinalco to offload the entire stake, and is expected to receive payments of about $1.1-1.3 billion with initial payment for shares beginning at the time of first commercial production.
As of now, the iron ore price push has given a sigh of relief to the miners which were kind of sinking a little low. The latest upsurge in commodity price has come at the back of iron ore futures which have been recovering well from the correction seen lately and are now yielding returns from investment standpoint. Market analysts have also started pumping-in healthy numbers for iron ore price forecasts. For instance, six-month and 12-month per tonne price forecasts have been figured out as $63 and $55, respectively, by Goldman Sachs. Further, the futures price for January 2017 iron ore contract has now been indicated to be up 8.9% at Rmb616.5 a tonne on Dalian Commodity Exchange. Among others, one key factor influencing the commodity price movements has been the Trump’s election win. Nonetheless, it will be interesting to keep an eye on these stocks in the medium- to long-term with recent commodity price predictions.
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