Why magnetite is hot and who’s making it
Mining
Mining
Barry FitzGerald writes his legendary Garimpeiro resources column weekly for Stockhead
Growing premiums for high-grade iron ore products in response to China’s drive to improve the efficiency of its steel industry — and reduce air pollution — has brought Australia’s magnetite sector in from the cold.
The sector has long been ignored because Australia’s iron ore exports are dominated by the Pilbara’s direct-shipping iron ores grading 58%-62% iron which are produced by the likes of Fortescue, BHP and Rio Tinto.
But a dramatic increase in the premiums paid for the upgraded iron ore product (magnetite concentrates and pellets grading 65%-70% iron) has resulted in prices measured by the 65% pricing index climbing to $US90-$US100/t.
That is contrast to what has happened at the lower grade end of the market where the discount applied to 58% iron ore on the 62% benchmark price of $68.40/t has blown out from usual 10-15% to a painful 29%.
No such issue for magnetite, with China’s steelmakers happy to pay up for increased iron units and lower impurities to increase their capacity utilisation, and to lessen their environmental impact.
It means fatter margins for magnetite which has a higher cost of production compared with direct-shipping iron ores because of the downstream processing involved.
And because the premium for high-grade iron ore products is widely considered structural rather than a flash in the pan, investors have gone looking for where they might get some magnetite exposure.
But the choice for investors is limited.
The Hong Kong-listed CITIC is Australia’s biggest magnetite concentrate producer from its Sino Iron operation in Western Australia where it is embroiled in a royalty dispute with Clive Palmer’s Mineralogy.
The colourful dispute with Mineralogy aside, CITIC last month reported that it was experiencing strong demand for its 65% iron product. It said steel mills were seeking out quality feedstock in an effort to lower carbon emissions and enhance plant efficiency.
“The spread in price between high grade and low grade iron ore products continues to increase and, as a producer of premium concentrate, Sino Iron is benefiting from this shift in the market,’’ CITIC said.
Grange Resources
Australia’s oldest magnetite operation is the Savage River pellet operation in north-west Tasmania, owned by the ASX-listed and Chinese-controlled Grange Resources (ASX:GRR).
Grange recently reported that in the June half, its received prices increased from $US87.72/t in the previous corresponding period to $US103.94/t.
The premium pricing for magnetite also augurs well for Grange’s long-held ambition to develop a big magnetite project in Western Australia, the Southdown project east of Albany.
The premium for magnetite pellets has made Grange a strong performer in the last couple of months when the rest of the mining sector has been heading south on widespread commodity price weakness. Its shares have risen from 16c to 22.5c in the period.
Carpentaria Resources and Iron Road
ASX-listed magnetite developers have also come to the attention of investors. That has been reflected in two of them – Carpentaria Resources (ASX:CAP) and Iron Road (ASX:IRD) – both recently being able to raise equity funds in support of their magnetite ambitions.
Carpentaria bills its majority-owned Hawsons magnetite project near Broken Hill as one which is “answering the world’s call for high grade iron ore products.’’
Last week it raised $1.24m from a placement of shares at 8.5c each.
That followed hot on the heels of news that Japanese trading giant Mitsui & Co would kick in $5.4m towards the cost of a bankable feasibility study in to the development of Hawsons in return for an option over 2mtpa of future production, expected to grade a world best 70% iron.
Iron Road also tapped the improved sentiment towards magnetite, announcing last week it was seeking $1.69m from shareholders from a discounted entitlement offer priced at 7.5c a share.
The funds will give new momentum to the group’s ambition to develop the Central Eyre magnetite project in South Australia.