Iron ore prices are approaching $60 a tonne amidst excess supply and low demand. BHP Billiton (NYSE: BHP) plans to produce 225 million tonnes of iron ore in FY, 2015, out of which it produced 113 million tonnes in H1, 2015. 
Source: Yahoo Finance
Recently, the Reserve Bank of Australia (or RBA) cut its interest rate by 25 basis points to revive the Australian economy. Traders expect the RBA to cut interest rates further by 0.25% in March. Since the beginning of the year, the Australian dollar depreciated more than 4% against the U.S. dollar. Recently , the U.S. dollar index crossed the 94 mark.
A stronger U.S. dollar will increase pressure on the Australian dollar. Further rate cuts by the RBA will weaken the Australian dollar, which will lead to operational cost savings. BHP Billiton’s FY 2015 profit after tax increases $100 million with $0.01/Australian dollar decline in the average exchange rate. This will offset losses from weak iron prices to some extent.
Rio Tinto (NYSE: RIO) plans to increase its production from 295 million tonnes in FY 2014 to 330 million tonnes in FY 2015. Fortescue Metals Group (OTC:FSUGY) plans to ship 150 million to 160 million tonnes of iron ore till June 2015. Rio Tinto and Fortescue Metals will also benefit from a weak Australian dollar. Fortescue expects its production cost to fall to $45 to $46 a tonne.
Final Thoughts
The rate cut by RBA is a blessing in disguise for Australian miners including BHP Billiton. The rate cut will lead to production cost savings amidst lower iron ore prices.