Gamble of the week: the bottom of the market for iron

No one in their right mind wants to bet on iron ore today. Prices slid from $190 per tonne in 2011 to $38 in December. Producers have been crushed. Huge new projects funded at the height of the boom continue to tip new supply into an already oversupplied market, promising little prospect of any imminent turnaround. Iron-ore heiress Gina Rinehart, for example, has just begun exporting from her vast new Roy Hill project in Australia. In Brazil, iron-ore giant Vale is about to open its S11D mine in the Amazon, the largest mine it has ever built, costing $14.4bn.

Big miners, such as Rio Tinto and BHP Billiton, have gained breathing space by pushing down unit costs by removing bottlenecks in their supply chains. For example, Rio's cash costs per tonne will be $11 by 2017, according to Deutsche Bank. But it has perversely lifted output yet further.

Smaller players, unable to eke out these benefits of scale, have been left high and dry. BC Iron and Atlas Iron have both shelved production. Other hopefuls have abandoned the market: Century Iron Mines has changed its name to Century Foods and is now distributing eggs in Hong Kong. Iron ore couldn't look bleaker.

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But is that fair? The career of one mining boss, Michael O'Keeffe, gives a different angle. Originally from Sydney, O'Keeffe headed Glencore's mining unit in Australia, before founding Riversdale Mining, a coal miner in Mozambique. In 2011, at the peak of the mining market, he sold the business to Rio Tinto for $3.9bn.

Having got out at the top, O'Keeffe sat on the sidelines until December, when his new company, Champion Iron (Sydney: CIA), paid C$10m for the Bloom Lake iron-ore mine in Canada. The mine was idled last January and would be loss-making at current prices, but to put its scale into context, in 2011 it sold for $4.3bn. It is a large asset that flies at higher prices.

Mining is a cyclical business at least half the trick is finding bosses who can put themselves on the right side of the industry's volatility. Four months after O'Keeffe bought Bloom Lake, iron ore has already rallied above $50 a tonne. Increasingly, it looks as though his latest deal marked the bottom of the market.