Red Hawk's Blacksmith has become an attractive asset for FMG to swallow. Pic: Getty Images
Bulk Buys: As iron ore outlook fades, majors gain more control in the Pilbara
Mining
share
- Iron ore major Fortescue consuming Red Hawk Mining in $254m deal
- All cash takeover shows the Pilbara is increasingly becoming the land of the giants
- Red Hawk MD Steven Michael says weakening iron ore forecasts meant project sale trumped standalone development
Uncertainty over the future of the iron ore market played a significant role in the likely $254 million takeover of the Pilbara’s largest junior resource holder by Andrew Forrest’s Fortescue (ASX:FMG), which announced the “logical” acquisition of Red Hawk Mining (ASX:RHK) yesterday.
It’s loose change for the ~$60 billion ASX 20 miner, the world’s fourth largest iron ore producer behind BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Brazil’s Vale.
At $1.05, the bid clocked in at a 28% premium to Red Hawk’s prevailing share price before the off-market takeover was announced. That will rise to 46% once it is upped to $1.20 – on the condition 75% of the company’s shares are sold to FMG in a week.
That’s almost certain. Over 80% of the company’s shares are held by two investors – New Zealand’s Todd family (~60%) and China-linked OCJ Investments (~22%).
Two members of RHK’s board, which has unanimously supported the offer, are Todd and OCJ appointees and both major backers have granted FMG an option to acquire a collective 19.99% of the company at $1.05 should they not sell up.
Formerly known as Flinders Mines, RHK and its Blacksmith project had been part of the larger Pilbara Iron Ore and Balla Balla Infrastructure Project which inked a State Agreement with the WA Government and touted a $6bn mine, port and rail development almost a decade ago, which could have produced 50Mt of very low grade iron ore a year.
The project was blighted by constant clashes between Todd and minority holders and was ultimately unrealistic. Under the Red Hawk moniker, the focus on key higher grade deposits has paid off.
2024’s best performing iron ore stock, RHK’s shares are 95% higher over the past year after putting the hard numbers around a pre-feasibility study suggesting the project could ship 5Mtpa annually via an export route taking its 60.5% Fe ore 450km via main roads to Port Hedland over 23 years.
But for various reasons, including sliding iron ore price forecasts, Fortescue was well placed to swoop in.
Logical acquirer
With the patchwork of tenements and overlapping infrastructure that dots the Pilbara, Red Hawk’s tenements – holding 243 million tonnes at 59.3% Fe – were in close proximity to mines owned by both FMG and Rio.
Blacksmith sits just 30km west of the major 75Mtpa Solomon hub and FMG’s rail network, with RHK MD Steven Michael describing its Eagle CID deposit as a northern extension of FMG’s Serenity.
RHK predicted it would cost over $200m to build the mine and around US$51 to produce and transport each tonne of ore from Blacksmith using road trains, with question marks still hovering over where it would find port capacity.
With iron ore prices falling over the past year, and majors like FMG looking for opportunities to improve their grade profile, the timing of the sale made sense.
“That was one of the big things that we were considering in making the recommendation by the board,” Michael told Stockhead.
“In our pre-feasibility study we’re using a long term iron ore price of US$89/t.
“The consensus in the market at the moment is for a long-term iron ore price below that.”
Michael pointed to BDO’s independent expert’s report, which declared FMG’s offer both fair and reasonable. It used an iron ore price of US$87/t and considered medium term forecasts of US$85-87/t.
Since the release of the PFS in May last year the Chinese property market – the traditional steam for the iron ore and steel engine – has shown few signs of recovering to pre-Covid levels of investment.
Mill owners spent the vast majority of 2024 under financial stress, with only four of the 36 majors covered by MySteel improving their financial position and more than half in the red.
Exports of both manufactured goods and Chinese steel products, which have propped up an ailing domestic market, are potentially under threat from anti-dumping investigations as well tariffs threatened by new US President Donald Trump.
Prices still strong
Prices remain historically strong, with Singapore futures capturing US$103/t yesterday, but marginal iron ore producers have found the going tough at those levels.
Some analysts are growing extremely bearish, with Capital Economics yesterday tipping an end of year price of US$85/t in 2025 and just US$70/t in 2026, though that’s below consensus.
“Overall, we expect additional low-cost mine capacity comping online, just as China’s commodity boom is winding down and tensions over steel trade are growing, to result in large market surpluses and weigh on iron ore prices over the coming years,” CapEc climate and commodities economist Hamad Hussain said.
Low cost majors – FMG’s hematite C1 cash costs came in at just US$18.24/t in the December quarter – are shielded from these pressures, though they would still see weaker earnings.
“One of the things with a truck to port solution of 450km is, regardless of the iron ore price, you’re never going to be able to get your unit cost down because of the long haulage,” Michael said.
“Whereas for someone like Fortescue, their average cost of production is about US$20/t versus we were looking in the US$50s.
“There is an inherent benefit to those majors who can still produce a very low global first quartile cost. We were aiming at the upper end of the second quartile.”
While he acknowledged many shareholders who bought in back in the Balla Balla days had made investments at higher prices, Michael said he was proud of the result Red Hawk’s current management had achieved.
“I joined the company in March 2023. At that point in time we had a share price of around 40c per share,” he said.
“The share price has doubled to just over 80c a share and now we’re looking at an all cash takeover at nearly a 50% premium to that gain.
“I think over the last few years we have actually added significant value to shareholders and I can say this is a very positive outcome for shareholders today.”
On the Fortescue side, RBC analyst Kaan Peker called the deal ‘small scale and synergistic’, but said it would support production of its higher grade products.
“Importantly, the Resource consisting of both Brockman and Marra Mamba ore, would likely support production of FMG’s higher grade West Pilbara Fines and Fortescue Blend products and arguably higher realised prices, as Reserves deplete from FMG’s existing Firetail (Brockman) operations,” he said.
“In our view, this transaction is unlikely to impact FY25 guidance or dividend. Also, we don’t expect the transaction changes the phasing of FMG’s replacement hubs; with Mindy South still expected by the end of the decade and Nyidinghu in the 2030s”
ASX iron ore stocks
| CODE | COMPANY | PRICE | WEEK % | MONTH % | 6 MONTH % | YEAR % | YTD % | MARKET CAP |
|---|---|---|---|---|---|---|---|---|
| ACS | Accent Resources NL | 0.006 | 0% | 0% | -14% | -14% | 0% | $ 2,838,763.70 |
| ADY | Admiralty Resources. | 0.006 | 0% | 0% | -50% | -14% | 0% | $ 15,776,876.39 |
| AKO | Akora Resources | 0.115 | 28% | 15% | -18% | -7% | 15% | $ 14,421,317.52 |
| BCK | Brockman Mining Ltd | 0.017 | 21% | 6% | -11% | -37% | 6% | $ 157,763,946.23 |
| BHP | BHP Group Limited | 39.48 | -2% | -1% | -6% | -17% | 0% | $ 199,455,055,700.28 |
| CIA | Champion Iron Ltd | 5.53 | -9% | -5% | -9% | -32% | -4% | $ 2,938,483,175.67 |
| CZR | CZR Resources Ltd | 0.155 | -18% | -26% | -39% | -52% | -26% | $ 42,612,236.46 |
| DRE | Dreadnought Resources Ltd | 0.012 | 9% | 9% | -45% | -45% | 0% | $ 41,445,800.00 |
| EFE | Eastern Resources | 0.027 | 4% | -4% | -46% | -61% | -4% | $ 3,404,428.57 |
| CUF | Cufe Ltd | 0.011 | 22% | 22% | -8% | -45% | 10% | $ 13,366,748.65 |
| FEX | Fenix Resources Ltd | 0.265 | -4% | 2% | -36% | -2% | 0% | $ 203,814,746.85 |
| FMG | Fortescue Ltd | 18.88 | -1% | 2% | -7% | -35% | 3% | $ 57,915,330,107.58 |
| RHK | Red Hawk Mining Ltd | 1.185 | 48% | 40% | 47% | 100% | 40% | $ 163,845,412.78 |
| GEN | Genmin | 0.032 | -3% | -20% | -71% | -80% | -20% | $ 28,804,298.32 |
| GRR | Grange Resources. | 0.2 | -2% | -9% | -39% | -59% | -9% | $ 243,041,126.58 |
| HAV | Havilah Resources | 0.21 | -5% | -5% | 2% | 35% | -7% | $ 71,243,822.16 |
| HAW | Hawthorn Resources | 0.044 | 5% | 7% | -38% | -55% | 7% | $ 14,740,686.97 |
| HIO | Hawsons Iron Ltd | 0.016 | -11% | -9% | -36% | -60% | -11% | $ 16,264,021.89 |
| IRD | Iron Road Ltd | 0.053 | -4% | -12% | -32% | -18% | -10% | $ 42,438,353.78 |
| JNO | Juno | 0.026 | 4% | 8% | -13% | -73% | 4% | $ 5,230,926.23 |
| LCY | Legacy Iron Ore | 0.009 | 0% | 0% | -48% | -45% | -10% | $ 87,858,383.26 |
| MAG | Magmatic Resrce Ltd | 0.053 | -2% | 77% | 2% | 29% | 77% | $ 22,103,687.84 |
| MDX | Mindax Limited | 0.04 | 0% | 0% | -23% | -17% | 0% | $ 81,951,351.20 |
| MGT | Magnetite Mines | 0.11 | -8% | -8% | -59% | -60% | -8% | $ 12,688,629.03 |
| MGU | Magnum Mining & Exp | 0.011 | 0% | 22% | -31% | -48% | 22% | $ 10,521,698.24 |
| MGX | Mount Gibson Iron | 0.315 | -5% | 3% | -14% | -42% | 7% | $ 390,787,273.50 |
| MIN | Mineral Resources. | 35.39 | -5% | 3% | -34% | -40% | 3% | $ 6,960,688,953.68 |
| MIO | Macarthur Minerals | 0.049 | -4% | 11% | -14% | -65% | 7% | $ 9,783,609.99 |
| PFE | Pantera Lithium | 0.018 | 6% | 0% | -41% | -61% | 0% | $ 8,528,106.38 |
| PLG | Pearlgullironlimited | 0.012 | 0% | -14% | -14% | -60% | -25% | $ 2,454,501.48 |
| RHI | Red Hill Minerals | 4.06 | -1% | -1% | -21% | 7% | -1% | $ 259,716,881.25 |
| RIO | Rio Tinto Limited | 117.68 | -2% | 1% | 2% | -11% | 0% | $ 43,926,014,602.62 |
| RLC | Reedy Lagoon Corp. | 0.003 | 50% | 50% | -14% | -40% | 50% | $ 2,330,120.03 |
| CTN | Catalina Resources | 0.003 | 0% | 0% | 0% | 0% | -25% | $ 3,731,285.68 |
| SRK | Strike Resources | 0.031 | 11% | 3% | -11% | -23% | 15% | $ 8,512,500.00 |
| SRN | Surefire Rescs NL | 0.0035 | -13% | 0% | -50% | -68% | 0% | $ 8,457,077.35 |
| TI1 | Tombador Iron | 0.35 | 0% | 0% | 0% | 0% | 0% | $ 30,213,639.40 |
| TLM | Talisman Mining | 0.185 | -14% | -8% | -27% | -10% | -10% | $ 38,605,671.55 |
| EQN | Equinoxresources | 0.115 | 15% | 10% | -60% | -62% | 10% | $ 14,242,750.35 |
| AMD | Arrow Minerals | 0.054 | 42% | 35% | -10% | -46% | 35% | $ 35,703,760.45 |
| CTM | Centaurus Metals Ltd | 0.395 | 10% | 10% | 13% | 32% | 11% | $ 208,614,509.46 |
| LM1 | Leeuwin Metals Ltd | 0.12 | 0% | -14% | 43% | -4% | -14% | $ 5,622,200.52 |
| M4M | Macro Metals Limited | 0.013 | 0% | -13% | -58% | 333% | 8% | $ 46,040,647.56 |
Stanmore smashed
A production record wasn’t enough to prevent Queensland met coal miner Stanmore Coal (ASX:SMR) copping a hiding yesterday as its shares tanked 8%, leading losses across a string of large coal stocks.
The owner of the Poitrel, Isaac Plains and South Walker Creek mines delivered saleable production for the last three months of 2024 of 3.3Mt, taking its total for the year to 13.8Mt, above prior guidance of 12.8-13.6Mt.
It came despite the closure of the underperforming Millennium asset as well as wet weather during the month of December.
Stanmore said high Chinese steel exports were contributing to weakness in the other Asian markets it supplies, with prime hard coking coal prices falling from US$205/t at the start of the December quarter to US$197/t at the turn of the year.
Net debt fell marginally from US$28m at September 30 to US$26m on December 31.
Stanmore’s rough ride came as Newcastle coal futures (thermal coal) dropped over 2% to US$115.95/t, with Australian coking coal down ~0.5% to US$190/t.
ASX coal stocks
| CODE | COMPANY | PRICE | WEEK % | MONTH % | 6 MONTH % | YEAR % | YTD % | MARKET CAP |
|---|---|---|---|---|---|---|---|---|
| NAE | New Age Exploration | 0.003 | 0% | -25% | -40% | -25% | -14% | $ 6,431,696.73 |
| CKA | Cokal Ltd | 0.06 | -6% | 0% | -29% | -45% | 0% | $ 63,657,989.82 |
| BCB | Bowen Coal Limited | 0.007 | -13% | 0% | -83% | -91% | -13% | $ 75,428,693.70 |
| SVG | Savannah Goldfields | 0.017 | -15% | -19% | -32% | -56% | -19% | $ 4,778,443.57 |
| AKM | Aspire Mining Ltd | 0.26 | 0% | 4% | -19% | 30% | 2% | $ 121,832,876.40 |
| AVM | Advance Metals Ltd | 0.039 | -9% | 15% | 50% | 28% | 15% | $ 6,739,966.96 |
| YAL | Yancoal Aust Ltd | 6.06 | 2% | -5% | -11% | 4% | -7% | $ 8,305,564,058.73 |
| NHC | New Hope Corporation | 4.61 | -6% | -9% | -3% | -13% | -7% | $ 4,142,143,773.60 |
| TIG | Tigers Realm Coal | 0.003 | 0% | 0% | 0% | -40% | 0% | $ 39,200,107.10 |
| SMR | Stanmore Resources | 2.65 | -11% | -11% | -28% | -31% | -12% | $ 2,596,007,905.92 |
| WHC | Whitehaven Coal | 6.05 | -2% | 1% | -22% | -26% | -2% | $ 5,270,584,939.20 |
| BRL | Bathurst Res Ltd. | 0.755 | 2% | 2% | -6% | -14% | 1% | $ 145,848,912.84 |
| CRN | Coronado Global Res | 0.66 | -10% | -11% | -52% | -59% | -14% | $ 1,114,841,730.45 |
| JAL | Jameson Resources | 0.035 | 0% | -13% | -42% | 6% | -13% | $ 21,375,666.27 |
| TER | Terracom Ltd | 0.185 | -3% | -3% | -8% | -51% | 3% | $ 148,178,753.48 |
| ATU | Atrum Coal Ltd | 0.00434 | 0% | 0% | 0% | 0% | 0% | $ 17,795,849.96 |
| MCM | Mc Mining Ltd | 0.12 | 0% | -4% | -14% | -8% | 4% | $ 57,133,842.12 |
| DBI | Dalrymple Bay | 3.67 | 4% | 1% | 21% | 32% | 2% | $ 1,849,191,017.91 |
| AQC | Auspaccoal Ltd | 0.077 | -15% | -23% | -16% | -20% | -23% | $ 53,936,004.51 |
