22/05/2019 - 15:35

Iron ore juniors back in game

22/05/2019 - 15:35

Bookmark

Save articles for future reference.

The price rebound this year has sparked renewed mining interest in at least eight previously mothballed projects.

Iron ore juniors back in game
Mt Gibson Iron recently exported its first iron ore shipment from Koolan Island in about four years. Photo: Mt Gibson

A resurgent iron ore price has opened the door for several junior miners in Western Australia to revive idle projects.

Business News has identified at least eight suspended iron ore projects, most of them in WA, which small mining companies are aiming to reopen.

Many of the projects were squeezed out of the market and abandoned as the iron ore price slid to a $US37 a tonne low in late 2015, after nudging all-time highs of more than $US190/t in February 2011.

But over the past year, the price has rebounded (click here to see price graph).

This rebound has been boosted by the fall in supply caused by Brazilian iron ore giant Vale SA’s tailings dam disaster at its Córrego do Feijão mine on January 25.

Around $US19 billion was wiped from Vale’s share price the next day, and the iron ore price surged from around $US75/t to $US92/t in the week after the disaster because of anticipated short-to-medium-term supply shortages. 

(click here to see a PDF version of this full special report)

Closer to home, the closure of the Port Hedland port combined with localised flooding in the area caused by cyclone Veronica in late March also created a temporary supply gap.

Commonwealth Bank commodities analyst Vivek Dhar estimated the two events halted up to 6 per cent of the world’s seaborne iron ore supply. 

West Perth-based small cap Mount Gibson Iron has been a beneficiary of the price surge. Last month it completed the $180 million resurrection of its Koolan Island mine, which contains ore with a grade of 66 per cent. 

It waved goodbye to the first iron ore shipment in about four years from the project.

Nathan River Resources, a subsidiary of London-based British Marine, is restarting the Roper Bar mine in the Northern Territory, and Adelaide-based Havilah Resources received $100 million of investment to partially go towards its iron ore projects in South Australia.

But the majority of the activity has been in WA, as locally based companies have sought to seize the favourable conditions and revive projects.

Jupiter Mines said in March it was seeking to restart its Central Yilgarn operations in the eastern Wheatbelt, which comprises the Mount Ida and Mount Mason hematite projects that were placed under care and maintenance in 2012 and 2014, respectively.

Last month, Macarthur Minerals selected Aurizon as the rail haulage operator for its $226 million Moonshine Magnetite mine in the Yilgarn, which has been stuck in the pre-feasibility study stage since 2012.

Also in the Yilgarn region, Cazaly Resources appointed engineering consultants Avora to assess advancing its Parker Range project, which has been dormant since Cazaly completed a definitive feasibility study on it in 2010.  

Cazaly joint managing director Nathan McMahon said the $170 million project had all the requisite permits, both environmental and mining, with an iron ore grade of 61.9 per cent.

This month, West Perth-based Venture Minerals announced a $5.7 capital raising for an updated study of its Riley mine in Tasmania.

Mr McMahon said he hated to forecast prices, but was optimistic about the future for junior iron ore miners.

“The general consensus from what we believe is that it (the iron ore price) will stay around these levels for quite a long time, which is obviously great,” he told Business News.

But analysts have mixed views on the price outlook.

Investment bank UBS has downgraded its BHP share price forecast on the back of predictions Vale will begin to regain its lost production over the next year.

“We do not see spot iron ore of approximately $US93 per tonne as being sustainable and expect prices to fall back over the next 12 months as Australian supply normalises and Brazilian supply starts to recover,” UBS said.

“We look for an average price of $US83 per tonne in 2019.”

The WA Treasury’s latest iron ore price assessment anticipates the price returning to around $US66/t by 2020-21.

However, the signs do not look promising for a Vale comeback, as its mines face increasing regulatory scrutiny following the dam disaster. 

Earlier this month, a Brazilian court overturned a decision to allow the restart of its Brucutu mine, which produces about 30 million tonnes of iron ore a year and is Brazil’s second largest mine.

The iron ore price hit $US95/t after the announcement.

Mr McMahon said one of the benefits in the current market was the export capacity available at certain WA ports, after major players like Mineral Resources diverted some of their attention to other projects and commodities.

“We operate in an area where there’s spare capacity on the rail as well as at the port of Esperance, which is an iron ore port,” he said.

“Mineral Resources is doing around 6.25 million tonnes, I believe, and that rail is capable of around 13 million tonnes.”

Mr McMahon said he believed the main factor determining the success of the operation would be the US dollar exchange rate.

The board of Nedlands-based Shree Minerals echoed Mr McMahon’s sentiment. In April it highlighted the exchange rate as a key reason behind the planned restart of its Nelson Bay mine in Tasmania, after it ceased mining at the $25 million operation in 2014.

“The iron ore prices in Australian dollar terms have improved due to the exchange rate of AUD to USD at around $0.71 levels, compared to around $0.95 levels when the Nelson Bay project was last operating in 2014,” the company said in a statement to the ASX.

But while there is evidently ample opportunity on the supply side, issues could arise around demand for the product.

According to the latest seasonally adjusted data from the Australian Bureau of Statistics, iron ore exports to China fell by $212 million in March, or 14 per cent, compared with the previous month.

However, while the overall demand for iron ore in China remains volatile, the demand for high-grade iron ore of at least 62 per cent, with lower impurities, is high, because it requires less pollution-causing beneficiation, which is ideal for the country as it ramps up its efforts on environmental control.

Commonwealth Bank’s Mr Dhar said the increased demand for high-grade ore would be a long-term shift.

“While we expect that premium (for higher grades) to pull back slightly from current levels, we believe the broad preference for higher-grade ores is a structural change in the market,” he said.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options