Bulk Buys: Coal and iron ore markets face more tightness from threat of Russian boycotts

As if we haven’t seen enough already since the start of the coronavirus pandemic, the invasion of Ukraine by Russia could cause more supply shocks in coal and iron ore markets where supply chains are already stretched thin.

Russia has been able to wave its $110 billion worth of oil and gas exports in the face of European nations in an attempt to scare them away from issuing sanctions, while its dominance in markets like aluminium, nickel and palladium is well known.

But sanctions and the logistics of the war itself could have severe repercussions in the world’s largest seaborne bulk metals markets coal and iron ore.

“Having to replace Russian coal volumes would result in a price shock to global coal markets and a coal shortage in Europe,” WoodMac says.

“Russian coal accounts for roughly 30% of European metallurgical coal imports and over 60% of European thermal coal imports.

“The primary issue with replacing Russian coal exports in Europe is its reliance on Russia’s particular quality of coal.”

There’s also the matter of the tightness of Asian coal markets, heavily supplied by Australian and, in the case of thermal coal, Indonesian producers.

Premium hard coking coal FOB Dalrymple Bay was paying US$457.54/t on Monday, down US$1.37/t on the end of last week according to Fastmarkets MB.

ANZ said Newcastle thermal coal futures were up a whopping 15.23% to US$275/t, which would eclipse last year’s spot record of US$269/t.

Iron ore prices are yet to be significantly impacted, but have recovered from two weeks of Chinese intervention in the spot market to return to around US$140/t in recent days.

Singapore futures for April were up 4.07% to US$147.70 yesterday.

Where the biggest impact could be felt is in the high grade segment of the market.

Vale EVP of investor relations Marcello Spinelli said on an earnings call on Friday the 25Mt of high-grade pellets produced in Russia and Ukraine comprised about 30% of that market. Ferrexpo has already called Force Majeure.

At 11.2Mt, the Ukrainian miner is the third largest producer of pellets in the world behind Vale and Sweden’s LKAB.

“My first reaction is that we don’t have extra supply to support a shortage … coming from this region. And the first impact will probably be in the pellet premium,” Vale’s Spinelli said.

“We’ve been hearing and receiving calls from our clients in Europe, in the East Europe to support them … we are trying to arrange our supply chain to help them, but there is a limited action for the shortage in short term.”

Yancoal makes coal statement with shock dividend and profit

Australian companies have already enjoyed price increases in 2022 after Indonesia stalled exports to boost domestic supplies in January.

They stand poised to benefit from any sanctions or customer boycotts of Russian coal as well.

Yancoal (ASX:YAL) CEO David Moult said yesterday that while official sanctions were not in place, Japanese and Korean customers were making inquiries to shift away from Russian coal cargoes.

Any additional tightness in the market would be good news for Yancoal; not that the resurgent coal miner or its Australian colleagues need it with prices as they are right now.

The company issued one of the biggest dividend payouts outside the iron ore majors with an unfranked distribution of $930 million announced Monday as it swung from a $1.04 billion loss in 2020 to a $791 million profit in 2021.

Despite rising costs from $59 to $67/t on the back of diesel inflation, demurrage, output falls at its Moolarben mine, wet weather and Covid, Yancoal posted a more than 200% rise in operating EBITDA from $748m in 2020 to $2.53b in 2021.

At average thermal coal prices of $134/t (about 85% of its 37.5Mt of YAL’s attributable coal sales in 2021) those margins looked very good indeed, especially compared to the $76/t Yancoal fielded in the pandemic affected 2020.

Its met coal sold for an average of $180/t, up from $124/t a year earlier.

Combined those prices came in at $141/t, generating a unit margin of $63/t after royalties.

Yancoal says its rolling contract structure will help capture strong current prices in 2022.

“The magnitude of the dividend demonstrates Yancoal’s capacity to make distributions during periods of coal price strength,” chairman Baocai Zhang said.

Yancoal share price today:

Tigers Realm assures shareholders on Russia concerns

If Australian coal miners could benefit from the revulsion of certain customers to Russian energy products, ASX-listed Tigers Realm Coal (ASX:TIG) is in an altogether different position.

Tigers Realm owns a coal mine over in Russia’s cold far east, a long way geographically from the Ukrainian conflict.

It has enjoyed the advantage of being able to sell coal into the Chinese market, where met coal prices touched a head-spinning US$600/t at one point last year after Australian exports were booted from the country.

But emerging concerns over the Ukrainian invasion and potential sanctions have weighed on Tigers Realm over the past week, sending its shares 11% lower.

That loss, which came despite TIG on Friday posting a 342% increase in after tax profits from a loss of $15.61m in 2020 to a $38m profit in 2021, would have been even more pronounced if its shares hadn’t rallied 33% yesterday after chairman Craig Wiggill issued a statement saying production was unaffected by the invasion.

However, he did say the company’s new coal handling and process plant would likely be delayed due to overseas equipment and service providers’ concerns about travelling to Russia.

CODE	COMPANY	PRICE	1 WEEK RETURN %	1 MONTH RETURN %	6 MONTH RETURN %	1 YEAR RETURN %	MARKET CAP
NAE	New Age Exploration	0.0135	-4%	-4%	23%	4%	$ 20,102,584.74
CKA	Cokal Ltd	0.155	-3%	0%	7%	121%	$ 145,537,091.90
NCZ	New Century Resource	1.9	-1%	-11%	-30%	-25%	$ 241,022,911.92
BCB	Bowen Coal Limited	0.24	17%	45%	100%	373%	$ 334,449,489.44
LNY	Laneway Res Ltd	0.0055	-15%	-8%	10%	-8%	$ 28,359,065.60
GRX	Greenx Metals Ltd	0.18	-18%	-18%	-38%	-30%	$ 45,651,683.52
AKM	Aspire Mining Ltd	0.082	-7%	-4%	3%	-18%	$ 40,610,958.80
PAK	Pacific American Hld	0.016	-6%	-11%	-5%	-22%	$ 7,646,038.43
AHQ	Allegiance Coal Ltd	0.485	-3%	-11%	-20%	15%	$ 189,062,767.90
YAL	Yancoal Aust Ltd	4	21%	44%	87%	55%	$ 4,595,129,240.76
NHC	New Hope Corporation	2.67	6%	17%	31%	113%	$ 2,114,186,988.28
TIG	Tigers Realm Coal	0.016	-11%	-20%	45%	129%	$ 156,800,428.42
SMR	Stanmore Resources	1.195	0%	2%	61%	49%	$ 316,375,418.97
WHC	Whitehaven Coal	3.38	7%	26%	41%	122%	$ 3,314,787,984.72
BRL	Bathurst Res Ltd.	0.79	0%	1%	30%	88%	$ 134,197,024.06
CRN	Coronado Global Res	1.7	12%	26%	67%	64%	$ 2,732,619,579.90
JAL	Jameson Resources	0.068	0%	-12%	-24%	-32%	$ 23,677,825.22
TER	Terracom Ltd	0.35	17%	77%	100%	150%	$ 237,386,403.45
ATU	Atrum Coal Ltd	0.023	5%	-18%	-47%	-90%	$ 14,518,735.06
MCM	Mc Mining Ltd	0.085	2%	-14%	-32%	-39%	$ 13,125,662.18

Junior iron ore empire Strikes comeback

Shades of 2021 are back in the iron ore market as junior miners are announcing plans to start new operations in Western Australia.

The newest kid on the block is Strike Resources (ASX:SRK), which on Monday announced it had secured a US$7.2m ($10m) debt deal with shareholder Good Importing International to back the development of its Paulsens East iron ore mine in the Pilbara.

Given its breakeven costs of US$87/t, the project may have been looking dicey a few months ago.

At current prices of ~US$140/t, it could stand to be a major money maker.

The 2Mt a year development is modest in comparison to companies like Rio and BHP, which plan to export around 600Mt combined in 2022.

But at benchmark prices of US$135/t and above the mine could generate net cash flows over its 3.5-year life of $309m.

That could be transformative for a company like Strike, which also owns the larger scale Apurimac iron ore project in Peru where it is currently operating a small high grade DSO operation with a view to building a large scale magnetite project.

Strike’s development plan is two-pronged. It wants to ship up to 400,000t of ore through the Utah Point Facility at Port Hedland in 2022, with the 75% lump content of the ore ensuring premiums that will help cover the haulage costs along the 600km route from mine to port.

After that it wants to export 2Mt of ore a year through the Port of Ashburton near Onslow, just 235km away.

Despite price volatility over the past year – prices have gone from record highs in excess of US$230/t to lows of US$87/t and back to US$140/t in under nine months – Strike boss William Johnson said they were now high enough to justify developing the Paulsens East deposit.

“Whilst iron ore prices have been relatively volatile over the last year, prices are currently sufficiently high to give the Board confidence to now advance with the Stage 1 Development of Paulsens East,” he said.

“With funding for this new mine secured, Strike is now poised to become Western Australia’s newest iron ore producer.”

Strike Resources share price today:

Junior iron ore sector recovering from late 2021 blip

Higher prices in 2022 compared to the end of 2021 have seen other small scale producers like GWR Group (ASX:GWR) restart their mines and encouraged others like CuFe (ASX:CUF) and Fenix Resources (ASX:FEX) whose operations has turned marginal late last year to keep production steady.

It is not the only positive news at the junior end of the iron ore sector in the past two days.

Grange Resources (ASX:GRR), which produces high grade pellet concentrates at its Savage River mine in Tasmania, added around a third of its market cap in the past two days after announcing a bumper 10c a share dividend for the 2021 full year.

Grange’s profit soared 58% in 2021 to $322.26 million as demand for high grade iron ores blew out the gap between benchmark 62% fines and the premiums paid for its upgrade magnetite pellets.

ASX-listed Brazilian producer Tombador Iron (ASX:TI1) also rose almost 15% yesterday after reporting a PFS and ore reserve for its project of the same name in Brazil’s Bahia State.

Its ore reserve of 5.59Mt comes in at 65.5%, a level of purity above the main premium price indicator, the 65% fines index, which largely comprises ore from major Vale’s high grade Brazilian operations.

Tombador plans to produce 1.2Mt of iron ore per annum over five years.

“The PFS confirms we have a great project capable of delivering strong financial returns,” CEO Gabriel Oliva said.

“The PFS was based on a production target of 1.2Mtpa and the last 5-year average iron ore index price The project is forecast to generate healthy cashflows on this basis.

“Now our focus is to increase sales volumes in the domestic and export markets so that our sales volumes equal the production target.”

CODE	COMPANY	PRICE	1 WEEK RETURN %	1 MONTH RETURN %	6 MONTH RETURN %	1 YEAR RETURN %	MARKET CAP
ACS	Accent Resources NL	0.056	0%	4%	8%	-41%	$ 26,097,527.85
ADY	Admiralty Resources.	0.016	-20%	14%	14%	7%	$ 20,857,266.45
AKO	Akora Resources	0.315	-17%	17%	58%	-22%	$ 16,636,442.13
BCK	Brockman Mining Ltd	0.052	-12%	13%	37%	41%	$ 426,844,678.03
BHP	BHP Group Limited	46.55	-4%	-1%	4%	-5%	$ 236,208,000,045.40
CIA	Champion Iron Ltd	6.62	-1%	4%	17%	22%	$ 3,326,980,481.44
CZR	CZR Resources Ltd	0.0075	7%	-6%	-17%	-38%	$ 26,147,424.58
DRE	Dreadnought Resources Ltd	0.038	-7%	3%	-12%	138%	$ 107,869,974.94
EFE	Eastern Resources	0.052	-7%	-5%	333%	364%	$ 50,194,678.07
CUF	Cufe Ltd	0.033	-15%	-8%	-53%	-27%	$ 31,221,708.05
FEX	Fenix Resources Ltd	0.235	2%	2%	-18%	-2%	$ 112,998,132.00
FMG	Fortescue Metals Grp	17.76	-9%	-9%	-11%	-26%	$ 55,883,213,261.70
FMS	Flinders Mines Ltd	0.48	2%	-8%	-44%	-71%	$ 82,735,802.73
GEN	Genmin	0.2	-9%	-5%	3%	0%	$ 56,457,570.00
GRR	Grange Resources.	1.005	26%	28%	107%	123%	$ 1,122,618,537.06
GWR	GWR Group Ltd	0.15	-9%	-14%	-30%	-46%	$ 44,146,802.28
HAV	Havilah Resources	0.175	3%	0%	-5%	-22%	$ 52,667,148.69
HAW	Hawthorn Resources	0.088	0%	0%	83%	10%	$ 30,016,405.17
HIO	Hawsons Iron Ltd	0.17	0%	-21%	85%	344%	$ 114,408,472.00
IRD	Iron Road Ltd	0.18	-3%	0%	-8%	-42%	$ 143,191,451.70
JNO	Juno	0.09	-18%	-22%	-49%	0%	$ 12,209,220.09
LCY	Legacy Iron Ore	0.019	0%	-5%	36%	-14%	$ 121,729,697.78
MAG	Magmatic Resrce Ltd	0.13	30%	46%	-4%	-13%	$ 26,721,113.79
MDX	Mindax Limited	0.059	48%	48%	34%	1867%	$ 112,391,210.73
MGT	Magnetite Mines	0.031	-3%	-18%	7%	35%	$ 94,672,406.43
MGU	Magnum Mining & Exp	0.066	-6%	-16%	-11%	-37%	$ 31,320,129.58
MGX	Mount Gibson Iron	0.54	-8%	30%	-13%	-39%	$ 635,548,217.33
MIN	Mineral Resources.	45.32	-4%	-16%	-13%	20%	$ 8,545,472,047.75
MIO	Macarthur Minerals	0.395	4%	20%	-19%	-31%	$ 47,896,476.21
PFE	Panteraminerals	0.165	-15%	-13%	-51%	0%	$ 7,590,000.00
PLG	Pearlgullironlimited	0.065	-19%	-3%	0%	0%	$ 3,843,161.56
RHI	Red Hill Iron	3.75	4%	23%	22%	1112%	$ 239,355,558.75
RIO	Rio Tinto Limited	117.82	-2%	4%	7%	-7%	$ 43,866,620,008.38
RLC	Reedy Lagoon Corp.	0.026	-7%	-21%	44%	8%	$ 13,148,573.52
SHH	Shree Minerals Ltd	0.02	11%	67%	100%	43%	$ 15,948,553.38
SRK	Strike Resources	0.125	14%	4%	-26%	-38%	$ 32,400,000.00
SRN	Surefire Rescs NL	0.013	-7%	18%	-13%	-48%	$ 14,665,532.82
TI1	Tombador Iron	0.039	8%	-3%	-34%	-55%	$ 38,010,311.49
TLM	Talisman Mining	0.17	-11%	3%	-6%	73%	$ 31,915,714.49
VMS	Venture Minerals	0.038	-5%	-7%	-53%	-34%	$ 61,788,430.90
EQN	Equinoxresources	0.19	0%	-10%	0%	0%	$ 8,325,000.19

How much is a dollar worth?

Rio Tinto (ASX:RIO) looks to have secured a clean exit from an ASIC investigation into whether it misled investors on the true value of its disastrous Mozambican coal assets after agreeing to a reported $750,000 settlement with the Australian financial watchdog.

At current iron ore prices that’s around 2% of the revenue Rio will make in just one shipment of iron ore from its operations in the Pilbara.

A drop in the ocean, as they say.

The Mozambique deal was not a drop in the ocean for Rio shareholders at the time.

Rio paid US$3.9 billion to take over project owner Riversdale Mining back in 2011 only to cop a US$3b impairment two years later, contributing to the exits of CEO Tom Albanese and CFO Guy Elliott.

It gets worse. Rio eventually sold the asset for a paltry US$50m in 2014.

It was one of two major M&A miscalculations made by Rio back in the boom times, along with the top of the market US$38 billion deal to buy aluminium producer Alcan in 2007, which itself prompted a number of embarrassing impairment charges.

Along with the settlement, ASIC will not pursue allegations against the two former executives.

Rio faced a far heftier £27,385,400 fine from the UK Financial Conduct Authority for failing to complete an impairment test and write off value from the asset in its half-year results in August 2012, five months before it announced 80% of the value of the asset had been wiped.

It is still facing allegations it misled investors over the Mozambique deal from the SEC in the USA.