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Canada Goose sale Iron ore rally fires up Rio Tinto’s commodity merry Canada Goose sale

(Repeats column published earlier with no changes to text.

Canada Goose Jackets It the stuff of dreams for mining company bosses: high prices and strong production that can be sold into a rally. Canada Goose Jackets

canada goose coats Iron ore has been the standout so far in 2017, and as the steel making ingredient surged to its highest level in three year above $90 a tonne, so too will profits at the three major producers, Brazil Vale and the Anglo Australian pair of Rio Tinto and BHP Billiton. canada goose coats

Investors have already had a little taste of what may come, with Rio raising its dividend above market expectations when it released results last week.

canada goose clearance sale The miner increased its payout to $1.70 a share and announced a $500 million share buyback, meaning it is paying out about canada goose outlet 70 percent of its underlying earnings to shareholders. canada goose clearance sale

canada goose If the company continues with that sort of payout ratio, shareholders may be in for a bonanza, so long as iron ore, which accounts for about 90 percent of Rio earnings, holds up. canada goose

Canada Goose Parka A back of the envelope calculation looks something like the following: Canada Goose Parka

canada goose store Rio aims to produce about 340 million tonnes of iron ore in 2017. Given a cash cost per tonne under $15 a tonne, it likely that Rio can get a tonne delivered to China with all taxes, royalties and charges paid for something under $30 a tonne. canada goose store

If the iron ore price averages $75 in 2017, which so far looks to be a conservative forecast, it means that Rio could potentially make a profit of about $45 a tonne.

That translates into total profits from iron ore in the region of $15.3 billion, equating to about $11.17 a share.

Now, it unlikely that Rio would decide to return all that cash to shareholders, with some likely to go towards retiring debt or funding new capital expenditure.

canadian goose jacket But what is clear is that if iron ore holds its gains in 2017, Rio, and its main competitors, are likely to be extremely strong generators of cash. canadian goose jacket

buy canada goose jacket cheap WITH CASH COMES RISKS Perhaps the Big Three can now even live up to the promise of strong returns made in the period around 2010 11, when iron ore prices were strong and instead of returning cash to shareholders the miners decided to relentlessly expand production. buy canada goose jacket cheap

cheap Canada Goose This resulted in five years of declining iron ore prices, and struggles for the shares of Rio and its competitors, with Rio dropping from above A$88 ($66) a share in February 2011 uk canada goose outlet to a low of A$37.03 in canada goose coats February canada goose last year. cheap Canada Goose

buy canada goose jacket Rio shares have enjoyed robust gains since then, jumping 85 percent to a close of A$68.40 canada goose coats on sale on Wednesday in Sydney. It a similar story canadian goose jacket at BHP, with its shares having gained 84 percent from its January canada goose store 2016 low to Wednesday close of A$26.53. buy canada goose jacket

However, while the current situation is clearly bullish for the iron ore miners, there are risks.

canada goose clearance The main risk is that iron ore prices slip back to what the market believes canada goose factory sale is more sustainable canada goose clearance sale in the long run, somewhere around the $60 a tonne mark. canada goose clearance

canada goose coats on sale The key buy canada goose jacket cheap is to watch uk canada goose China imports and any signs of its domestic iron cheap Canada Goose ore mining sector reviving. canada goose coats on sale

So far imports are holding Canada Goose sale up well, with January 92 million Canada Goose Outlet tonnes the second highest on record and canada goose uk outlet a canada goose black friday sale 12 percent gain from the same month a year ago.

Even if iron ore prices retreat, it unlikely they will return to the lows of last year when they came precipitously canada goose https://www.canadagooseonline.org uk black friday close to $30 a tonne.

This means the miners will still likely have plenty of cash.

Canada Goose online Investors will no doubt be keen to get their hands on some of it, given the long wait for returns to Canada Goose online arrive, but what happens once dividends have been lifted. Canada Goose online

Money tends to burn a hole in one pocket, canada goose uk shop and mining companies have proven no different to feckless individuals when it comes to spending.

canada goose black friday sale Equity analysts are likely to start pressurising mining bosses to show where the next stream Canada Goose Online of growth is coming from, and just running operations as efficiently as possible is unlikely to sate demand for executives to be seen to be doing something to boost growth. canada goose black friday sale

Canada Goose Outlet We cheap canada goose uk may well end up with a repeat of the situation Canada Goose Jackets of ill advised mergers and acquisitions, or heavy capital spending on commodities where Canada Goose Parka there is a perceived undersupply, thus driving them into oversupply. Canada Goose Outlet

canada goose deals There canada goose clearance is no doubt mining and selling commodities is a cyclical Canada Goose Coats On Sale business, and we may just be at the start of the next cycle of rising profits followed buy canada goose jacket by investment decisions that in hindsight look somewhat dodgy canada goose deals.