Bulk Buys: FMG puts back first production for US$3.9b Iron Bridge mine again
Andrew Forrest’s Fortescue Metals Group (ASX:FMG) has for a long time been synonymous with the supply of low grade iron ore from the Pilbara to China.
In fact, its emergence hinged on the theory, proven to be correct, that China’s urbanisation through the 2000s would see a dramatic ramp up in its steel output that would require ores outside of the 62% Fe benchmark grade to fill rapidly expanding order books from emerging steel producers.
In recent years it has shifted the needle, focusing both on growing its traditional hematite production rate, hitting a record 189Mt in 2022 and first half record of 96.2Mt in FY23, and on extending into higher grade segments of the iron ore market.
Its big statement piece is the US$3.9 billion Iron Bridge magnetite mine in the Pilbara.
Once in full swing it will produce 22Mtpa, around 10% or so of FMG’s total output in WA, at a grade of 67% Fe.
But the process to get it off the ground has been a long, expensive and complicated one.
When Iron Bridge was approved in April 2019 it was supposed to cost US$2.6b and be open by mid-2022.
Along with 31% partner Formosa Steel, still attached to the project, Chinese steel producer Baosteel also had a 12% stake in Fortescue subsidiary FMG IB, owner of the majority 69% stake in the mine.
Bandied as Australia’s largest JORC compliant magnetite resource, it has taken longer and been costlier to develop, playing a role in executive and COO Greg Lilleyman’s departure in early 2021.
First production had been reslated for this quarter with around 1Mt of its high grade concentrate to depart Port Hedland this financial year ahead of its full ramp up.
But it was no surprise to see FMG advising production would be delayed to the second half of April.
Why is FMG so keen on a project that has proved so difficult in its execution?
There are changing winds in the global steel industry, which is responsible for around 8% of the world’s CO2 emissions and 15% of China’s.
Magnetite of the grade produced at Iron Bridge can be blended with lower grade ores to improve blast furnace efficiencies.
Unlike low and mid-grade fines and lump, the main products produced in the Pilbara, it is also suited to so-called ‘green steel’.
Because it is high in grade and low in impurities, the concentrate can be used in direct reduced iron, a process that could become low or emissions free if paired with green hydrogen, a product FMG wants to sell at a rate of millions of tonnes a year through its new Fortescue Future Industries green energy division.
WoodMac reckons we would need 750Mtpa of this type of iron ore supplied by 2050 to meet net zero targets in the steel industry.
Current supplies are around a fifth of that, with the Chinese run Sino Iron and Karara iron ore mines the only major operations in WA.
But the product should generate significant premiums over the 62% Fe Platts benchmark.
FMG said in a statement yesterday it “continues to make significant progress” amid the impact of the Pilbara’s seasonal summer wet on the site.
“Commissioning activities are well progressed on Dry Processing Line A and water commissioning of the Wet Plant is near completion,” the company said.
“The entire steel concentrate and return water pipelines have been welded and buried, and the Canning Basin raw water pipeline is complete and undergoing final testing.
“Water commissioning has commenced on Line A at the Concentrate Handling Facility at Port Hedland.”
From $63 billion FMG to the very, very small end of the iron ore market, 2021 float Pearl Gull Iron (ASX:PLG) has announced a maiden inferred resource for its Cockatoo Island project.
Located in WA’s north, the project bears some similarities to the nearby Koolan Island, where Mt Gibson Iron (ASX:MGX) mines the highest grade hematite ore in Australia.
PLG is exploring tenements outside the history Seawall Pit, owned by another party, the main source of 45Mt of ultra high grade iron ore mined from 1951 to 2012.
PLG has now delivered a maiden inferred resource for its Magazine pit of 24.5Mt at 34.3% Fe, a grade that would require beneficiation before sale in the international market.
Its Seawall and High-Wall hematite deposits at the Switch Pit could be more promising as straight crush and ship DSO prospects.
PLG has posted conceptual exploration targets of 0.38-6.6Mt at 66% Fe for Seawall and 0.1-1.9Mt at 55-65% Fe for the High-Wall hematite.
PLG has seen its shares fall almost 80% since its 2021 float to 3.4c, but the $6m market cap explorer will be hoping an improved iron ore market and exploration success can fuel a rerate.
“Following the IPO in 2021, and completion of the drilling program outlined in our prospectus, we are very pleased to announce an Inferred Mineral Resource at the Magazine deposit,” chairman Russell Clark said.
“Magazine has the potential to expand further and provides the opportunity to support a larger tonnage operation with beneficiation. The Exploration Target highlights the potential for significant high-grade mineralisation and provides continuing exploration potential.
“We have also confirmed the ability to reach international markets with a low CAPEX transhipping design which will underpin the ongoing resource development work.”
Iron ore prices in Singapore lifted 1.58% to US$122.45/t yesterday, with consultancy MySteel reporting tight market fundamentals in China could support prices after an US$11 slide last week. That came as trading volumes fell to 152,758t in China from March 20-24 down from 169,563t the previous week.
“The country’s iron ore market fundamentals are being buoyed by the mills’ higher output of hot metal and their low stocks of ore, according to (a Mysteel source),” MySteel’s Lea Li reported.
“Consequently, they will lend some support to imported iron ore prices this week.
“For example, stocks of iron ore sintering fines held by the 64 sampled mills included in Mysteel’s survey rose by 2.6% on week to around 11 million tonnes as of March 22, still lower by 26% on year, Mysteel’s survey showed.”
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After two and a half months of slides, thermal coal prices look to have stabilised.
Front month futures lifted slightly to US$195/t on Tuesday for 6000kcal high CV Newcastle coal.
It came amid a broader lift across the energy sector on the ASX yesterday, which included a 6.11% gain for Whitehaven Coal (ASX:WHC).
Coking coal was steady at prices of around US$350/t.
Steelmaking coal has been one of the major beneficiaries of China’s reopening in 2023, rising alongside iron ore prices as the reopening of China to Australian coal imports and an improved outlook for economic growth in the Middle Kingdom helped lift steel raw materials.
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