Shares of junior iron ore miner, Grange Resources Limited (ASX: GRR), jumped 10% today following a market update issued this morning.
In an announcement to the ASX, the company said it continues to enjoy robust profit margins despite a plunging iron ore spot price.
Whilst iron ore miners have suffered significant share price falls in recent times, today Grange Resources appears to have bucked the trend.
In recent years iron ore, a key steel-making ingredient, has sold for high prices as China demanded more and more.
However, with fears that China has overbuilt on infrastructure and will reduce its demand for raw metals, investors have grown nervous.
The supply side of the equation hasn't done investors any favours either, with giants Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP) and Brazil's Vale all vowing to continue pumping higher amounts of new iron ore into the market.
Small miners like Atlas Iron Limited (ASX: AGO), BC Iron Limited (ASX: BCI) and Arrium Ltd (ASX: ARI) are believed to be struggling to breakeven under the current iron ore price of $US57.66 per tonne, according to The Metal Bulletin.
However, despite boasting a market cap of just $127 million, Grange Resources is a little different from other miners. It refines its ore into 'pellets' of much higher grade, thus allowing it to charge a higher price.
In its update to the market today, Grange Resources says it continues to enjoy, "robust margins and cashflow amid strong demand for high-grade iron ore pellets."
Its cash operating costs were around $68 per tonne in the two months to February 28, whilst the price it receives for its pellets was $105 per tonne, down 37% year-over-year, but still ahead of the benchmark price.
Should you buy Grange Resources shares?
Despite "robust" cash margins, a 10% jump in price and a seemingly undemanding valuation, I think there are better opportunities on the market than Grange Resources. This is because iron ore prices will likely fall from here in my opinion, as the oversupply scenario does not appear to be slowing down.
