Analysts Forecast 12-52% Boost in Earnings for Miners if Iron Ore Price of $150 a Tonne Will Be Sustained Till June

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By Vittorio Hernandez | February 11, 2013 9:49 AM EST

With the economic recovery of China on the horizon, analysts are forecasting higher earnings for Australian miners if iron ore's current price of $150 per tonne would be sustained for the next few months.

The Commonwealth Bank of Australia (CBA) foresees that Fortescue (ASX: FMG) would boost its earnings by 30 per cent, Rio Tinto (ASX: RIO) by 12 per cent and BHP Billiton (ASX: BHP) by 7 per cent if iron ore prices would not change from its current level until the end of the first quarter.

If the price would hold until end of June, Fortescue would enjoy 52 per cent higher earnings, Rio 22 per cent and BHP 12 per cent.

"We could be on the verge of the first earnings upgrade for 18 months . . . We are at the end of the downgrade cycle and the market should again begin focusing on the valuation upside," The Sydney Morning Herald quoted CBA analysts.

Rio is expected to report its calendar 2012 earnings on Thursday with underlying earnings of $9.1 billion, but $14 billion in impairments would cause the mining giant's first loss which cost ex-Rio Chief Executive Tom Albanese his job.

Another bank, UBS, estimated that BHP and Rio would report 22 and 23 per cent, respectively, hikes in their earnings while Fortescue would log 54 per cent increase on the condition that spot iron prices are sustained.

The decline in prices of the commodity in September 2012 to a low of $87 per tonne did not deter the three miners from increasing their production targets. The Reserve Bank of Australia (RBA) also disclosed that mining investment in Australia will continue to go up in 2013.

But when it comes to iron ore prices, the RBA does not share the banks' optimism. The central bank said that while the latest improvement in commodity prices would boost the government's income in 2013, particularly revenues from the mining tax, it foresees a fall in exports over the longer term and the inability of iron prices to be sustained at its current high levels

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