Figures this week from the Australian Department of Industry, Science, Energy and Resources show Australia’s record iron ore bonanza is going to drive a remarkable $149 billion of sales in 2020-21.

It has come on the back of soaring prices for the steelmaking commodity, the main contributor to an estimated $310 billion commodity trade boon in the financial year.

Prices rose slightly yesterday to a bit over $10 shy of May records at US$220.05/t, well above a year-long average of US$152.

Analysts from the department were bearish, predicting they will fall to US$109/t in 2022 and US$95/t in 2023, though they estimated as recently as the March Resources and Energy Quarterly that 2021 prices would average around US$110/t.

However, they see Australia’s total production rising over that time from 919Mt this year to 978Mt in 2023 as new mines come online, with projected sales of $137b in 2022 and $113b in 2023.

Despite suggestions China will look to replace Australian ore with domestic product, scrap steel and China-controlled operations in Africa, depletion of mines elsewhere should see Australia maintain its market share, they wrote.

“Global iron ore markets are expected to remain tight, with slow growth in both supply and demand over the next few years,” the analysts from the Office of the Chief Economist predict.

“Market structure is not expected to alter significantly, with Australia’s market share expected to hold up.

“A recovery in Brazilian supply is likely in the short-term, but a number of high-cost mines in Brazil and China are also expected to face closure or depletion over the next 10 year.”

 

An iron ore tale for the ages

This week’s iron ore tale of interest comes from recently delisted Sundance Resources, which got the Macbeth treatment from its own partner and shareholder AustSino Resources Group over its Mbalam-Nabeba iron ore project in Africa spanning the Cameroon-Congo border.

It had the 100 million tonne mine, port and rail project stripped last year by the Congolese government and handed to mysterious, probably Chinese-backed Sangha Mining at the same time as a few other western companies and the same month it dropped off the ASX.

The expropriated projects were being bundled into a US$18.5 billion development with a number of red flags, such as the need to construct 1400km of railway through unchartered Congolese terrain including a nature reserve and the suggestion the mine would be up and running by 2023.

Sundance was pursuing the Congolese Government for US$8.76 billion in damages and had initiated arbitration with the Cameroon Government over the portion of the project it took off Sundance’s hands.

It must have been some shock for Sundance’s already frustrated CEO Giulio Casello when he saw AustSino, also delisted by the ASX in December, was signing an MoU with the Cameroonian Government and Bestway Finance – who Sundance says ultimately owns Sangha – to deliver the project.

It’s the sort of plot you only get in the movies, or in the wild west world of African iron ore developments.

Sundance says it partnered with AustSino for two years and introduced the Chinese-backed company to key movers and shakers in Cameroon, but ended discussions in November 2020 after a $29 million funding commitment from AustSino failed to materialise.

 

Interesting turn of events

AustSino’s quite incredible recollection of events involves its chairman Chun Ming Ding leaving Australia for West Africa on a fact finding mission to see what was up with the whole iron ore shebang before being introduced to Bestway in January this year.

“We are shocked at these latest developments, not least because an Australian company – AustSino – that we introduced into the Mbalam-Nabeba Iron Ore Project is attempting to benefit from the illegal expropriation of Sundance’s iron ore assets,” Casello said in a statement.

“AustSino had been our partner for a number of years. We worked in good faith to introduce AustSino to our project and arrange a role for AustSino in the negotiations with Cameroon and Congo on the basis of a clear understanding that AustSino would act in our mutual interests in accordance with their legal obligations.”

Much has been made of the idea that China wants to leverage its might to use Africa’s iron ore resources to diversify away from Australia in the midst of diplomatic tensions.

A lot of that talk has revolved around Simandou, a Guinean iron ore deposit partly held by Australia’s Rio Tinto (ASX: RIO), which has sat in what Hollywood types would call development hell for decades.

 

Iron ore futures down, questions on steel margins

According to Reuters, iron ore futures dropped more than 3% yesterday, with the most traded September contract in Dalian falling 3.4% to US$177.08/t.

While Chinese efforts to intervene on commodity prices were mooted as one factor, many of the factors for lower steel demand noted were seasonal, including unfavourable weather.

Some steel mills have also been ordered to shut to reduce smog during Communist Party centenary celebrations in Beijing, according to analysts at Sinosteel Futures.

Researchers have pointed to falling steel margins as a potential indicator of downward pressure on prices, although CBA’s Vivek Dhar said demand for medium and higher grade product had been pushed up by soaring domestic coking coal prices in China.

“Iron ore prices rose on increased demand for mid (62% Fe) and high‑grade (63.5%+ Fe) ores at Chinese steel mills,” Dhar wrote in a note Monday.

“Higher grade ores with low impurities typically requires less coking coal. Chinese mills are looking to reduce their exposure to high local coking coal prices to minimise costs. It’s worth noting that margins for steel rebar (used in construction) have turned negative and have now remained loss‑making for three days.

“Platts reports that traders believe margins need to stay negative for at least 1 or 2 months before mills switch to lower grade ores (i.e. 58% Fe).”

 

Market steady as juniors make biggest gains

 

ASX iron ore stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
MGT Magnetite Mines 0.09 32 38 592 4804 $ 279,652,023.11
EFE Eastern Iron 0.016 23 23 90 243 $ 11,178,476.46
SRK Strike Resources 0.245 17 0 63 410 $ 63,450,000.00
GEN Genmin 0.235 15 -18 $ 56,347,570.00
CAP Carpentaria Resource 0.18 16 16 362 847 $ 73,739,799.98
GWR GWR Group Ltd 0.315 13 31 9 392 $ 96,891,661.76
HAV Havilah Resources 0.23 12 -10 31 84 $ 71,975,148.58
GRR Grange Resources. 0.56 8 11 93 129 $ 642,322,977.39
MIN Mineral Resources. 51.3 7 12 43 144 $ 9,718,015,713.18
FMG Fortescue Metals Grp 22.92 5 4 -3 62 $ 70,970,141,359.90
BHP BHP Group Limited 47.76 5 -1 11 32 $ 142,579,207,469.60
SHH Shree Minerals Ltd 0.012 4 -20 -43 140 $ 12,758,842.70
FEL Fe Limited 0.05 4 14 35 285 $ 34,972,251.20
RIO Rio Tinto Limited 124.68 4 1 8 26 $ 46,791,803,774.70
MGX Mount Gibson Iron 0.92 3 10 -1 48 $ 1,096,973,389.65
MGU Magnum Mining & Exp 0.16 3 -3 171 357 $ 77,552,877.28
FEX Fenix Resources Ltd 0.335 3 16 52 290 $ 159,872,732.80
CIA Champion Iron Ltd 6.39 2 -3 31 126 $ 3,336,623,520.76
HAW Hawthorn Resources 0.047 0 -11 -61 -52 $ 15,008,202.59
JNO Juno 0.185 0 12 $ 24,418,440.18
IRD Iron Road Ltd 0.265 0 13 39 305 $ 205,992,612.80
ACS Accent Resources NL 0.05 0 0 150 900 $ 23,301,364.15
AKO Akora Resources 0.24 0 -8 -32 $ 12,294,144.00
FMS Flinders Mines Ltd 0.87 -1 -3 -14 -1 $ 147,742,504.88
TLM Talisman Mining 0.21 -2 -5 114 40 $ 38,258,818.93
BCK Brockman Mining Ltd 0.038 -3 -17 -53 90 $ 352,610,820.98
VMS Venture Minerals 0.135 -4 23 141 440 $ 179,439,203.21
MAG Magmatic Resrce Ltd 0.125 -4 -44 -26 -51 $ 28,513,665.31
DRE Drednought Resources 0.024 -4 -4 20 300 $ 59,239,002.26
CZR CZR Resources Ltd 0.01 -5 -29 -38 -47 $ 29,956,698.39
RLC Reedy Lagoon Corp. 0.016 -6 -20 14 300 $ 7,050,392.49
LCY Legacy Iron Ore 0.013 -7 -13 -62 333 $ 83,261,600.72
MIO Macarthur Minerals 0.44 -7 -10 -19 159 $ 57,651,795.35
TI1 Tombador Iron 0.084 -8 -16 42 299 $ 84,538,865.46
MDX Mindax Limited 0.073 -10 14 2333 2333 $ 138,597,173.35
SRN Surefire Rescs NL 0.015 -12 -35 -32 275 $ 16,405,656.15
ADY Admiralty Resources. 0.017 -19 -6 31 183 $ 19,705,289.88
RHI Red Hill Iron 0.92 -20 2 291 513 $ 56,285,460.06

Of the bigger miners Rio Tinto (ASX: RIO) was down 0.8% yesterday to $125 and BHP (ASX: BHP) was off 0.7% to $48.06 while Fortescue (ASX: FMG) was up 0.4% to $23.14 and Mineral Resources (ASX: MIN) was fetching $51.64 (0.3% gain).

Magnetite Mines (ASX: MGT) was the best performing junior on our watchlist over the past week with a ~32% gain.

Magnetite owns the 3Bt Razorback iron project in South Australia, where it is completing a pre-feasibility study on a premium grade magnetite iron ore concentrate operation.

Also up 17%+ for the week was Strike Resources (ASX: SRK), which yesterday announced haulage from its high grade (65%) Apurimac project in Peru had begun ahead of a maiden 30,000t shipment next month.

The lump product from the small 250,000tpa operation will cost around US$70-80/t to produce and ship, but will generate a premium on the benchmark 62% iron ore fines price.

The DSO program is intended as a cashflow-generating prelude to a larger 15-20Mtpa project that will be the subject of a pre-feasibility study.

Carpentaria Resources (ASX: CAP), up ~850% over the past 12 months and Genmin (ASX: GEN) also posted reasonable gains.

 

BHP and Anglo exit Glencore joint venture

 

ASX coal stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
AHQ Allegiance Coal Ltd 0.675 1 29 165 125 $ 190,469,858.40
NAE New Age Exploration 0.012 0 -25 20 100 $ 18,569,185.83
PAK Pacific American Hld 0.019 0 -5 -14 90 $ 6,053,113.10
CKA Cokal Ltd 0.059 0 -2 -14 37 $ 53,625,774.15
PDZ Prairie Mining Ltd 0.26 0 13 44 37 $ 60,514,098.59
WHC Whitehaven Coal 1.9 1 18 14 31 $ 2,018,819,473.56
NHC New Hope Corporation 1.75 -6 19 23 28 $ 1,464,948,464.32
BCB Bowen Coal Limited 0.07 6 8 56 25 $ 68,492,358.34
NCZ New Century Resource 0.215 8 16 -2 23 $ 266,184,170.12
TIG Tigers Realm Coal 0.008 -11 0 -11 16 $ 104,533,618.94
MR1 Montem Resources 0.028 -60 -69 -88 $ 5,893,257.33
YAL Yancoal Aust Ltd 1.94 -4 -3 -20 -7 $ 2,627,674,479.63
MCM Mc Mining Ltd 0.1 -5 -5 -47 -9 $ 15,441,955.50
CRN Coronado Global Res 0.805 7 16 -22 -11 $ 1,399,838,864.55
SMR Stanmore Resources 0.695 0 1 -13 -12 $ 197,396,628.93
BRL Bathurst Res Ltd. 0.46 56 39 18 -13 $ 75,218,714.12
AKM Aspire Mining Ltd 0.074 -3 -8 -18 -20 $ 37,565,136.89
LNY Laneway Res Ltd 0.004 -20 -20 -43 -20 $ 15,100,263.73
TER Terracom Ltd 0.11 0 -12 -35 -31 $ 82,896,839.30
JAL Jameson Resources 0.085 -2 -6 -23 -39 $ 25,783,210.65
ATU Atrum Coal Ltd 0.027 -43 -46 -91 -88 $ 15,712,154.63

Coal prices are climbing sharply post-pandemic but the ESG exposure is too much for the world’s biggest miner to handle.

Commodity trading giant Glencore paid BHP and Anglo American a combined US$588m to buy out their thirds of the Cerrejon thermal coal JV in Colombia.

Glencore’s Australian boss Ivan Glasenberg made sure the door hit his buddies on the way out.

“Disposing of fossil fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions,” he said.

“We are confident we can manage the decline of our fossil fuel portfolio in a responsible manner that is also consistent with meeting the goals of the Paris Agreement, as demonstrated by our strengthened total emission reduction targets.”

Ouch.

BHP just has its Australian assets to sell, while Anglo is goneski after spinning its South African business into Thungela Resources.

Glencore plans to reduce its Scope 1, 2 & 3 emissions intensity by 50% towards net zero by 2035, up from a previous target of 40%, despite the presence of 109Mtpa of thermal coal production in its portfolio.

“For this to be achieved we would presume that this will mean lower production than previously from its existing portfolio, leaving the impact of this transaction potentially a net positive for the climate,” RBC Capital Markets London mining analyst Tyler Broda said.

Thermal coal FOB Newcastle was priced at US$128.55 yesterday, while Fastmarkets reported premium hard coking coal FOB Dalrymple Bay Coal Terminal at US$183.82/t, with hard coking coal priced down 33c at US$159.59.

Non-Australian coal was through the roof in Jingtang, China, with premium hard coking coal US$2.36 up to US$306.50/t and hard coking coal US$1.36 up at US$266.67/t.

At Stockhead, we tell it like it is. While Magnetite Mines and Strike Resources are Stockhead advertisers, they did not sponsor this article.