27/08/2008 - 22:00

External forces ensure a bumpy ride

27/08/2008 - 22:00

Bookmark

Save articles for future reference.

Iron ore miners and developers feature strongly among the Western Australian stocks to have delivered top returns over the three years to June 30.

External forces ensure a bumpy ride

Iron ore miners and developers feature strongly among the Western Australian stocks to have delivered top returns over the three years to June 30.

These companies include Fortescue Metals Group, Atlas Iron, Gindalbie Metals, Strike Resources and Sundance Resources; collectively they illustrate the many different ways to take advantage of the boom conditions in the iron ore market.

They also illustrate the wild ride often facing investors who back project developers, whose fortunes are tied to many factors outside their direct control, including commodity price fluctuations and regulatory approvals.

Most WA iron ore companies have targeted the Pilbara, which is one of the world's major iron ore provinces, while others are targeting the Mid West region, Africa and South America.

The biggest of these companies, and one of the top performers, was FMG. It delivered a total shareholder return of 245 per cent per annum over the three years to June 30 2008 - though investors who bought FMG stock on June 30 would now be facing serious losses.

Over the past two months, its share price has slumped from $11.90 to $7.30.

This is at odds with its achievements on the ground.

FMG shipped its first iron ore exports from Port Hedland in May, making it the Pilbara's first new producer and exporter for many years.

It is targeting annual production of 55 million tonnes per year from its current operations and is aiming for a substantial expansion (see page 34).

Many other companies are aspiring to join FMG as an iron ore producer, though their plans are comparatively modest.

One of the most advanced is Atlas Iron, which has also taken investors on a wild ride. Over the three years to June 30, when its shares were trading at $3.68, it delivered a TSR of 164 per cent a year, making it one of the best performers over this period.

That share price compares with an all-time high of $4.37 in October 2007 and a current price of about $1.20.

The current price is bad news for investors who paid $2 per share in a $100 million placement completed in April this year.

The good news for Atlas is that it is just two months away from starting production at its Pardoo project near Port Hedland, and is aiming to commence exports by December.

Atlas recently negotiated an agreement to gain access to FMG's port infrastructure but still has to gain final environmental approvals before it can commence exporting.

Atlas' medium term goal is to export 12mtpa from two iron ore projects by 2012.

Another iron ore company making serious progress towards production is Gindalbie Metals, which has the backing of Chinese steel maker Ansteel.

It is aiming for first production next year from its half-owned Karara project, which is being developed at a capital cost of $1.8 billion.

Like Atlas, it still has to clear final environmental approvals, particularly for its Karara hematite project.

Over the three years to June 30, when its shares were trading at $1.44, Gindalbie delivered a TSR of 166 per cent per annum.

Its share price has since slumped to about 85 cents, though it has been as high as $1.98 in the past year.

Gindalbie Metals chairman George Jones also chairs Sundance Resources, which is aiming to develop an iron ore project in the African nation of Cameroon.

Sundance's share price has gone backwards over the past year and is currently trading at about 21 cents, down from a peak of 88 cents in October last year, when there was a short-lived plan to merge with Gindalbie.

Strike Resources is targeting iron ore projects in an even more exotic location, Peru.

It plans to develop its flagship 20mtpa Apurimac project by 2012 and in the interim is seeking to develop a series of smaller coal and iron ore projects in Indonesia, Australian and Peru to boost cash flow.

Russian investor Alisher Usmanov recently agreed to invest $103 million in Strike, at a price of $2.75 per share.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options