Goldman Sachs has long had a bullish outlook on iron ore, maintaining a forecast earlier this year of US$120/t with a three-month target in February of US$150/t.

That never materialised as China’s Covid recovery turned sour, at least when it came to its steel-supporting property sector.

Prices have threatened to fall below US$100/t for good on a couple of occasions this year.

Goldman has now turned the dials back down from 11 and taken a more conservative approach, tipping a tightening of the taps from the Pilbara giants’ steel factory customers and traders.

It thinks prices will now fall to US$90/t at the half-year and hit US$80/t within three months.

Goldman now sees iron ore slipping into a surplus for the first time since a seemingly eternal deficit emerged in 2018, powered by supply problems from Brazil’s Vale after the disastrous and devastating Brumandinho dam collapse in January 2019.

Just as Goldman turned bearish on iron ore the market appeared to turn against the investment banking giant. New reports that China could provide more support to the property sector sent prices higher.

Futures in Singapore rose to over US$108/t at one point yesterday before falling to US$105.70/t at the close of business in Perth, up 0.63% for the day.

“Regulators are reportedly looking to reduce down‑payments for properties in some parts of major cities, lower agent commissions and relax restrictions on purchasing property,” Commbank analyst Vivek Dhar said.

“Some of these changes refine parts of China’s 16‑point‑plan released in November last year to rescue the property sector.”

However, he noted that more ambitious economic support, in particular around infrastructure, would only come if China looked likely to miss its economic growth target of 5% this year. Its GDP grew at an official rate of 4.5% in the March Quarter.

“Given the battering the property sector took last year, it’s likely that it will take longer and larger policy interventions than previous property sector downturns to bring confidence back to home buyers and developers. That means that any renewed policy support for the property sector is unlikely to immediately arrest the recent weakening and slowing in China’s property sector,” he said.

“Infrastructure investment remains the most predictable pathway to boost China’s commodity intensive economy this year.

“However, given concerns over local government debt, we think policymakers will only truly consider infrastructure stimulus if policymakers are worried that China’s target of ‘around 5%’ economic growth in 2023 is under threat.”

 

Goldman says Rio and Champion Iron remain buys

But, for now at least, Goldman’s Australian research team has retained buys on a number of iron ore players.

BHP (ASX:BHP) is one of those, as is its major competitor Rio Tinto (ASX:RIO).

The catalyst for analysts Paul Young and Caleb Heiner’s latest buy-rated note on Rio was actually around its Resolution copper project in America, where Rio’s project team thinks a final environmental impact statement could be approved in the second half of 2023 following years of wrangling with First Nations groups.

It’s not insignificant. The JV with BHP could cost US$7-9b including US$1b already spent establishing two shafts, with Rio’s share coming at US$4-5b, and could be worth $6 per share to Rio’s share price at a 100% NPV of US$14b, according to GS numbers.

According to GS, iron ore accounts for around US$91.6b of its US$153b NAV, equivalent to $80.7 per share (GS’ Rio PT is $136.1/sh, 27% upside on its share price on Friday).

Meanwhile, Young and Heiner are also retaining a buy rating on Champion Iron (ASX:CIA), with a price target for the high grade iron ore producer of $8.20 per share.

That is down from $8.30/sh, but up on the $3.2b stock’s $6.15 price yesterday. In its $7.77 NAV — up from $7.65/sh — Goldman is assuming a long run 65% Fe price of US$95/t.

That would impute a far lower 62% Fe benchmark than current levels, given Champion’s magnetite concentrate at 66.2% Fe commands a massive premium to the standard Pilbara fines.

If you’re more bullish on iron ore long term, for every US$10/t increase in the long run price, GS says its NAV for CIA increases $1.2/sh.

Despite falling prices, Young and Heiner rate CIA as a buy, saying the nameplate capacity for its project to double of scale at the Bloom Lake mine in Canada should be complete by August, hitting a 15.4Mtpa runrate from the December quarter.

CIA, which is looking into a US$351m project to upgrade its concentrate to a pellet feed suited for greener direct reduced iron steel production at a near on market leading 69% Fe, could ramp up to 18Mtpa through de-bottlenecking.

It could also ramp up to as much as 25Mtpa over time by developing the nearby Kami project, commenting on the study on a conference call last week.

“CIA continues to study further high grade expansions via either de-bottlenecking the two existing plants to ~18Mtpa or a third plant (Kami project) to take capacity to
~25Mtpa (FS due 2H CY23) and the FS on the pellet plant refurbishment/rebuild at the port also due in 2H CY23, though commentary on the call indicated that CIA will
likely prefer to invest in further DRPF capacity before investing in pelletisation but would not rule it out if the right partner was interested,” Young and Heiner said.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.01 0% 0% -60% -83% $ 4,731,272.83
ADY Admiralty Resources. 0.006 -14% 0% -14% -54% $ 7,821,474.92
AKO Akora Resources 0.195 5% 30% 15% -17% $ 18,521,648.73
BCK Brockman Mining Ltd 0.031 -3% 3% 35% -21% $ 278,406,963.93
BHP BHP Group Limited 43.6 1% -1% -7% -7% $ 222,896,104,464.00
CIA Champion Iron Ltd 6.15 0% -3% -11% -22% $ 3,206,597,381.20
CZR CZR Resources Ltd 0.17 0% 3% -32% -36% $ 38,896,216.59
DRE Dreadnought Resources Ltd 0.051 -7% -15% -47% 24% $ 169,714,139.22
EFE Eastern Resources 0.011 0% 0% -67% -62% $ 12,419,464.61
CUF Cufe Ltd 0.011 -8% -15% -27% -63% $ 10,627,236.02
FEX Fenix Resources Ltd 0.235 0% 0% -6% -27% $ 137,278,051.20
FMG Fortescue Metals Grp 20.36 3% 1% -3% -5% $ 62,810,884,327.20
FMS Flinders Mines Ltd 0.415 4% -14% -10% -1% $ 70,072,159.46
GEN Genmin 0.155 3% -3% -38% -16% $ 69,948,901.27
GRR Grange Resources. 0.55 3% -8% -35% -67% $ 613,389,509.94
GWR GWR Group Ltd 0.075 14% -3% 23% -35% $ 24,091,249.13
HAV Havilah Resources 0.255 -2% -2% -15% -6% $ 82,326,194.60
HAW Hawthorn Resources 0.094 11% 25% -25% -18% $ 31,491,467.62
HIO Hawsons Iron Ltd 0.035 -5% -31% -67% -94% $ 32,167,487.07
IRD Iron Road Ltd 0.079 -7% -17% -39% -56% $ 66,165,100.70
JNO Juno 0.068 -6% -20% -26% -38% $ 9,089,086.07
LCY Legacy Iron Ore 0.016 14% 0% -16% -29% $ 102,509,219.18
MAG Magmatic Resrce Ltd 0.092 -29% -29% -4% 30% $ 28,123,737.42
MDX Mindax Limited 0.063 -34% -59% 7% 7% $ 124,779,085.58
MGT Magnetite Mines 0.41 -11% -27% -52% -70% $ 30,335,283.60
MGU Magnum Mining & Exp 0.027 0% 42% 23% -48% $ 19,418,503.33
MGX Mount Gibson Iron 0.4 0% -10% -25% -43% $ 491,839,829.87
MIN Mineral Resources. 69.43 -3% -1% -23% 15% $ 13,651,731,906.40
MIO Macarthur Minerals 0.19 23% 27% 12% -33% $ 24,019,755.76
PFE Panteraminerals 0.075 4% -12% -38% -42% $ 3,862,584.00
PLG Pearlgullironlimited 0.031 3% -6% 36% 31% $ 4,692,487.14
RHI Red Hill Minerals 4.5 -4% 0% 18% 40% $ 287,226,670.50
RIO Rio Tinto Limited 111.33 2% 2% -4% -4% $ 41,424,017,320.26
RLC Reedy Lagoon Corp. 0.006 0% 0% -45% -74% $ 3,400,317.61
CTN Catalina Resources 0.0035 -13% -30% -56% -63% $ 4,334,704.12
SRK Strike Resources 0.068 3% 15% -31% -58% $ 19,295,000.00
SRN Surefire Rescs NL 0.017 -6% 0% 31% -48% $ 28,073,179.11
TI1 Tombador Iron 0.02 0% -5% -17% -39% $ 45,141,754.83
TLM Talisman Mining 0.175 -10% 13% 30% -3% $ 31,915,714.49
VMS Venture Minerals 0.016 -6% -11% -33% -60% $ 31,200,208.56
EQN Equinoxresources 0.135 4% 4% 4% -21% $ 5,850,000.13
AMD Arrow Minerals 0.004 14% 0% -11% 33% $ 12,095,060.38
Wordpress Table Plugin

 

Coal bounces off its 2023 lows

Coal has fallen further and faster than analysts predicted this year, with Newcastle 6000kcal coal, which scaled highs in excess of US$450/t in the second half of last year, tumbling down to as low as US$131/t.

While those prices are strong by historical standards, they’re well below where most market analysts saw last year’s boom commodity headed in 2023.

Goldman for one saw prices falling from April, but not as far as they have. The investment bank earlier this year predicted thermal coal prices would average US$275/t in 2023.

As of the end of last year there appeared little reason to think respite was coming for energy users, with Russia’s invasion of Ukraine and subsequent economic blackballing in Europe tipping the coal market along with major supply disruptions to a 40Mt deficit.

That has unwound thanks to falling gas prices and high natural gas stores in Europe off the back of a mild winter and so far cool summer.

But prices bounced yesterday, with front month futures lifting almost $10 to US$143.90/t.

That saw Whitehaven (ASX:WHC) and Yancoal (ASX:YAL), the two largest standalone coal players on the ASX, rise sharply.

Going the other way was Bowen Coal (ASX:BCB), which has blamed logistical delays related to third parties for impacting near term cash flows.

The situation saw the nascent met coal producer head to the market in a $40 million placement and $10 million share purchase plan at 17c per share, a 22.7% discount to its previous closing price.

There’s a bunch of work for the Nick Jorss chaired miner to get done, with funds from the placement to be used on capex at its Burton mine, including the completion of a box cut at Ellensfield South, haul road upgrade, infrastructure and working capital.

Other capex is being funded from cash flow and existing finance, including relocating a power line at the Broadmeadow East deposit to extend the life of its pit to 2027, permanent electricity connection at Burton and refurbishing the second module of the Burton wash plant.

The company says shipping delays at its Bluff mine and industry wide rail issues had hurt its cash flow, with shipping availability expected to improve over the next 4-6 weeks.

“Operating costs at BME are broadly in line with the Company’s previous guidance envelope despite inflationary mining cost pressure,” the company, which says its wash plant at Burton is also operating at a capacity in excess of 2.75Mtpa on a 24 hour basis, said.

“Bluff costs are expected to decrease with increased mining volumes.”

Premium hard coking coal was trading at US$225.7/t yesterday, lifting along with the rest of the Chinese steel complex.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.006 0% 20% -33% -40% $ 8,615,393.46
CKA Cokal Ltd 0.12 -14% -20% -40% -14% $ 140,263,367.40
BCB Bowen Coal Limited 0.17 -24% -23% -37% -54% $ 405,211,004.66
SVG Savannah Goldfields 0.145 0% -6% -24% -9% $ 28,398,023.51
GRX Greenx Metals Ltd 0.8 5% 10% 40% 357% $ 211,462,806.81
AKM Aspire Mining Ltd 0.06 5% 3% -23% -31% $ 28,935,308.15
AVM Advance Metals Ltd 0.008 0% 14% -33% -27% $ 4,708,469.81
AHQ Allegiance Coal Ltd 0.013 0% 0% -73% -97% $ 13,063,647.08
YAL Yancoal Aust Ltd 4.62 -4% -12% -14% -15% $ 5,849,546,705.91
NHC New Hope Corporation 4.97 2% -2% -12% 27% $ 4,234,893,489.60
TIG Tigers Realm Coal 0.006 -25% 0% -60% -74% $ 104,533,618.94
SMR Stanmore Resources 2.56 -3% -11% 0% -2% $ 2,244,465,168.66
WHC Whitehaven Coal 6.2 1% -9% -35% 15% $ 5,187,805,676.46
BRL Bathurst Res Ltd. 0.93 0% -8% 3% -40% $ 176,050,997.60
CRN Coronado Global Res 1.36 -1% -14% -30% -29% $ 2,279,977,072.80
JAL Jameson Resources 0.07 -7% 0% -44% -7% $ 29,363,332.50
TER Terracom Ltd 0.49 -3% -17% -44% -43% $ 372,449,299.28
ATU Atrum Coal Ltd 0.005 0% 0% -23% -40% $ 6,958,495.86
MCM Mc Mining Ltd 0.15 -12% -29% -38% 31% $ 59,949,780.30
DBI Dalrymple Bay 2.61 1% -1% 4% 27% $ 1,298,895,567.54
AQC Auspaccoal Ltd 0.145 -3% -17% -41% -3% $ 50,360,088.19
Wordpress Table Plugin

Read MoreCoalIron Ore

Featured Companies

You might be interested in