Times are tough for Australia's junior minors as plunging iron ore prices squeeze them out of the market, but analysts believe oil's recent decline will provide respite.
"The one thing that has helped smaller miners is the fall in oil prices and the Australian dollar," Gavin Wendt, founding director and senior resource analyst at MineLife, told CNBC on Tuesday. "That should provide them with insulation to iron ore prices."
Prices of the ferrous metal are once again in sight of five-year lows at $67 per ton after falling below those levels last year amid a massive supply glut and waning Chinese demand. As major miners like Rio Tinto and BHP Billiton continue to expand production, smaller miners are being forced to slash costs and consolidate to survive due to small economies of scale as well as high costs and breakeven prices.
On Tuesday, shares of Atlas Iron dropped as much as 7 percent after the firm revised down guidance on capital expenditure this financial year by A$25 million. Other miners resorted to more severe measures: Deloitte estimates that nearly 200 Australian mining companies filed for bankruptcy between June 2013 and September 2014.
"An iron ore price of $70 per ton still provides plenty of upside for BHP and Rio, which have break-even costs below $50 per ton," Wendt said. But it puts a host of junior producers underwater given their higher break-even prices, he said. Wendt estimates break-even prices for Gindalbie Metals at $98, Grange Resources at $86, Atlas Iron at $82 and Mount Gibson at $77.