Atlas Iron Ltd Jumps 9% on Joining the All Ords

Atlas Iron Ltd [ASX:AGO] is a small iron ore miner. They have projects in the Northern Pilbara region and Port Hedland. Like many iron ore miners, AGO’s share price swings with the price of iron ore.

This morning, the stock climbed 9.68%, to a high of 34 cents. However, the one-month futures price of iron ore slid 0.5%, to US$86.79 a tonne. So if iron ore wasn’t the catalyst for AGO’s share price rise, what was?

What happened to the Atlas Iron Share Price?

This morning, the S&P Dow Jones announced their quarterly rebalance of the ASX indices. Each index has its own characteristic. It usually relates to market capitalisation or industry classification.

For example, the ASX 200 index includes the top 200 Aussie stocks by market cap. The ASX 200 Resources Index is made up of the top 200 Aussie resource stocks by market cap.

Since market capitalisation and company operations change from time to time, the S&P Dow Jones changes these indices quarterly. In their most recent change, AGO made it into the All Ordinaries Index. This index includes the top 500 Aussie companies by market cap.

What now for Atlas Iron?

Being added to this index could pump up AGO’s share price, as it did today. When investors buy an All Ords index fund, they are buying a fund which mimics the returns of the All Ords. Hence, when buying these index funds, investors are buying small portions of AGO.

And while this might bid up the stock in the short-term, the price of iron remains far more important to AGO.

Iron ore has raced up in recent months. Yet can prices stay above US$80 a tonne? It remains to be seen. Either way, iron ore supply/demand are likely to significantly affect AGO’s profitability in the future.

Regards,

Härje Ronngard,
Junior Analyst, Money Morning

PS: We likely won’t see another turnaround in resources like we did in 2016. And if we do, it could be a while. Unless commodity prices suddenly move higher, earnings will likely stagnate.

That’s why some investors prefer the smaller end of the market.

Smaller miners are a riskier investment, there’s no running away from it. But they could potentially grow earnings 10-fold in a short space of time. Resource specialist Jason Stevenson is no stranger to explosive resource stocks.

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