Australia's two biggest iron ore miners, Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP), have been hit hard in 2014. Respectively, their share prices are down 12% and 10%, compared to a 2.8% gain from the broader S&P/ASX 200 (INDEX^: AXJO) (ASX:XJO).
The culprit: A falling iron ore price. Driven by increasing supply from Australia and Brazil, coupled with a pullback in Chinese demand.
Since December 2013 the steel-making ingredient's spot price has fallen 43% from $US135 per tonne to just $US76.46 per tonne. BHP and Rio can withstand the lower prices because their breakeven costs are around $US55 and $US43 per tonne, respectively.
However, many small producers will not make money in the current environment with some already going broke. Indeed, if the spot price stays where it is for an extended period of time (as some analysts are suggesting), I could see at least a handful of well-known Australian miners going out of business by 2016.
Buy, Hold, or Sell?
Despite both BHP and Rio boasting the lowest all-in costs per tonne as well as diversified commodity bases, I still think there's more pain in store for all iron ore miners.
Whilst I remain bullish on both miners in the long term, I can't help but think investors will get a better buying opportunity in the not-too-distant future.
