The Pilbara iron ore miners are facing business pressures on a number of fronts, including the on again, off again story around the reopening of WA’s Covid border.

The WA Government’s decision to delay its planned February 5 reopening indefinitely will mean further pressure on labour will remain, though whether the cure is worse than the disease in this instance remains to be seen.

Over in the east a number of companies have seen Covid absenteeism hit their operations and guidance, including last week Whitehaven Coal (ASX:WHC).

As iron ore prices have again swung in their favour, WA’s miners are said to be divided on whether the delay of the reopening was a good thing.

Some are keen to protect their nest eggs, comfortable in the knowledge the border has done them and, for Mark McGowan’s Government, their royalties, well.

Others, like FMG’s Elizabeth Gaines, say the work was already done to prepare the industry for the opening, making the comments on Tuesday as the miner revealed it had produced a record 93.1Mt in the first half of the financial year behind the protection of WA’s hard border.

“We have team members who have been away from their families for long periods of time, many of whom went back for Christmas for a well-earned break on the expectation they could come back, everyone’s done the right thing,” she said.

“They’ve followed the mandate, people have got vaccinated. So it’s in response to the changing circumstances.

“That high rate of vaccination gave us confidence and our robust COVID management plan, screening before flying to a Fortescue site, we were confident that we’ll continue to manage in the circumstances.”

FMG is similarly disappointed it will be unable to draw on specialist skills from outside the State.

 

Inflation to stay as costs rise

While Covid has cost FMG just 15-20c on each tonne of iron ore mined, the Andrew Forrest chaired miner says inflationary pressures outside of Covid are becoming less likely to be transitory.

Although it remains extremely profitable with benchmark iron ore prices above US$130/t yesterday, FMG has seen its costs increase by 19.5% over the past 12 months from US$12.81/t in December 2020 to US$15.31/t in December 21.

“We’re seeing significant increase in external costs, like diesel for example,” Gaines said.

“I guess you’d have to take your own view on whether you think that’s transitory. I think we’re going to see the … volatility of pricing of energy is going to be a big factor, particularly as the world starts to transition to green energy.

“On some of the other costs, labor rates for example, there’s strong demand for labor in Western Australia.

“At the moment, there’s a lot of activity where the sector is growing, there’s investment in projects. So again, I’m not sure that that’s transitory, we’ll continue to see strong demand for labor.

“Hopefully, over time, as we see greater mobility of labor, both domestically and internationally. We may see some of that sort of tapered back a little bit.”

 

Price discounts will be cyclical: Gaines

FMG and Mineral Resources (ASX:MIN) showed the latest evidence of the yawning gap low grade miners are seeing between their product and the benchmark Platts 62% index.

Price differentials between 62% and 58% indexes have blown out to as much as 40%, challenging record price spreads last seen during 2017 and 2018.

FMG on Tuesday reported its price realisation had fallen from 73% in the September quarter to 68% in the December quarter, having been as high as 91% one year earlier.

MinRes meanwhile saw its realisation slide to just 58%, pulling in a little over US$63/t for ore it was selling for well over double that six months earlier.

Some analysts believe conditions that support relative parity between mid and low grade iron ore are unlikely to re-emerge as China turns the screws on carbon emissions.

Gaines on the other hand says the iron ore market is behaving as it has in the past.

“If you go back to 2018 and you look at the price realisation of that point in the cycle, lower than current price realisation,” she said on a media call.

“(CFO) Ian (Wells) mentioned earlier we’ve averaged 82% over the past decade, but certainly in 2018, we were 62-63% realisation.

“At the time there was a view that might be a structural change in the industry, our view was it was cyclical, and certainly that is how it played out.”

Wells attributes the growing discount to a glut of low grade iron ore on the seaborne market replacing the strained supply of higher grade product, as well as factors like mill margins and coke prices.

“Our realised price was impacted by both the severe reduction in China’s steel production, which was down 15% compared with the first half of calendar year 2021. And also the same period last year, so in calendar year 2020,” he said.

“Whilst at the same time, low grade iron ore supply increased with high grade supply constraints, and in response to the high iron ore prices.

“And we estimate that this low grade supply was up about 12% year on year in the second half of the calendar year. So put simply, demand down and supply up impacts price.”

 

FMG growing high grade segment, but details thin

That doesn’t FMG is not simultaneously prepping for a world where higher ore grades have an advantage.

“Since then (2018), our product mix has changed. So we’ve added West Pilbara Fines through our product mix, we also have obviously Iron Bridge with first production scheduled in December this year,” she said.

“So over time our product mix will continue to change. We keep our costs low, we continue to generate very strong margins regardless of the cycle and we also have a number of distribution channels, including our Fortescue Trading Shanghai.

“So our mix has changed, our distribution structure has changed, but we still have the same view that this is a cyclical industry.”

Fortescue said it remains on schedule to deliver first concentrate production at the 22Mtpa Iron Bridge magnetite mine in WA in December, which at 67% would capture prices today of around US$164.52/t based on the Fastmarkets 66% concentrate index.

While the US$3.3-3.5 billion Iron Bridge project, around 145km south of Port Hedland, has been well reported for some time, other new iron ore developments on FMG’s horizon leave more questions to be answered.

Gaines said it remains too early to say what costs may look like at the revived Oakajee Port and Rail project, a State building exercise the WA Government was keen on back in the early 2010s to turn its Mid West into the next Pilbara.

FMG came on board last week to study the project with China’s SinoSteel, with the option of taking a 50% stake in its Midwest Magnetite Project and 100% stake in the port and rail development at the end of a “rapid” 12-month study period.

It aligns with Andrew Forrest’s green energy ambitions as well. The WA Government last year pinpointed Oakajee, 23km north of Geraldton, as an ideal location for a renewable hydrogen hub.

“The scale of the iron ore opportunity will help to determine the energy requirements plus also the opportunity for further exports of energy as well. So the scale of the operations will have an impact on the size of the of the energy requirement,” Gaines told reporters.

The outgoing FMG chief was vague also on the identity of the owners of Abu Dhabi’s Africa Transformation and Industrialisation Fund, a 20% owner of the company that will be formed if Fortescue decides to develop the Belinga iron ore project in Gabon.

 

‘People are investing’

That sort of vagueness, mainly around press releases on its green energy initiatives, has seen FMG wear criticism from some investors and analysts confused about its direction and valuation.

The green energy arm Fortescue Future Industries now has around 700 staff and will take up around US$400-600 million of capex in FY22, with the US$223m spent acquiring high performance battery business Williams Advanced Engineering paid out of FMG on top of that.

But Gaines said people “are investing” and are supportive of the direction FMG is taking, calling the number of new projects on its hands a function of the miner’s ambitions.

“I don’t know why people can’t work it out; we sort of disclose what we’re doing. There is a lot of activity, as you would expect,” she said.

“We’ve always said that we’ll invest in the sustainability of our operations, we’ve got an ambitious agenda to decarbonise. We’re looking to grow and develop the business as well.

“And you’ve seen that through a couple of the other announcements in iron ore. But that’s a function of a business that is busy, ambitious for growth and has a defined strategy and vision.”

 

Mixed week for iron ore miners

It’s been a mixed week for iron ore majors amidst the hustle and bustle of reporting season, with weakness in markets weighing on the big end of the sector.

Rio Tinto and BHP reported last week, both flagging risks that Covid-19 impacts could hit the sector. They are believed to be pretty comfortable with Mark McGowan’s decision to keep the WA border closed, something that drew the ire of controversial Sydney stockbroker Angus Aitken in a note where he described the WA Premier as a knob.

There’s a feeling from many in the West that the East don’t get it, even though Omicron’s spread in WA could make it all irrelevant anyway.

Rio Tinto’s production update was disappointing again, with the miner seeing every division of its business fall short on 2020 numbers, including its iron ore.

BHP was solid with 144.4Mt of exports in the first half putting the company on track to hit the upper end of its 278-288Mt guidance range. But BHP is seemingly shifting its focus now to expanding its battery metals offerings after passing the unification vote that will give its Australian entity more scrip to play with to hunt a major deal.

At the junior end of the iron ore market a handful of miners have had news to report.

Eastern Iron (ASX:EFE), which has enjoyed a strong run in its share price over the past 12 months after pivoting to lithium, was down Monday after releasing a feasibility study on its Nowa Nowa iron project in Victoria.

A study on the mid-grade magnetite project suggested it could produce 1Mtpa over a six-year life of mine from its JORC measured and indicated resource of 4.65Mt at 51.75% Fe at a capital cost of just $15.7m.

However, the project would carry relatively high operating costs of $72/t.

According to EFE the third such study undertaken at Nowa Nowa after a scoping study in 2012 and feasibility study in 2014 gives the project a pre-tax NPV of $61.94m and IRR of 11.8%.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.054 0% -2% 6% 170% $ 25,165,473.28
ADY Admiralty Resources. 0.014 8% 0% -30% 0% $ 18,250,108.14
AKO Akora Resources 0.26 8% 33% -4% -32% $ 13,609,298.56
BCK Brockman Mining Ltd 0.048 -6% -13% 30% -14% $ 482,520,070.81
BHP BHP Group Limited 46.7 4% 13% -10% 0% $ 136,154,101,833.10
CIA Champion Iron Ltd 6.4 8% 29% -8% 20% $ 3,185,833,900.04
CZR CZR Resources Ltd 0.009 13% 20% -22% -44% $ 31,376,909.49
DRE Drednought Resources 0.041 3% 8% 5% 71% $ 117,743,117.37
EFE Eastern Resources 0.074 28% 32% 335% 621% $ 71,994,616.23
CUF Cufe Ltd 0.037 -8% 12% -60% -20% $ 37,844,494.60
FEX Fenix Resources Ltd 0.295 4% 28% -33% 5% $ 143,130,967.20
FMG Fortescue Metals Grp 20.75 1% 9% -20% -18% $ 63,950,101,346.86
FMS Flinders Mines Ltd 0.54 -6% 2% -47% -45% $ 89,489,745.81
GEN Genmin 0.235 0% 12% 15% 0% $ 66,337,644.75
GRR Grange Resources. 0.82 -2% 22% 12% 200% $ 960,591,119.34
GWR GWR Group Ltd 0.185 -16% 54% -55% -55% $ 57,678,223.24
HAV Havilah Resources 0.19 6% 19% -16% -7% $ 60,412,317.62
HAW Hawthorn Resources 0.105 5% 25% 110% -5% $ 35,019,139.37
HIO Hawsons Iron Ltd 0.22 -2% 52% 33% 322% $ 171,612,708.00
IRD Iron Road Ltd 0.195 0% -3% -29% 3% $ 151,146,532.35
JNO Juno 0.12 4% 0% -47% 0% $ 16,278,960.12
LCY Legacy Iron Ore 0.023 -8% 0% 44% -41% $ 147,357,002.58
MAG Magmatic Resrce Ltd 0.098 1% -2% -35% -41% $ 25,448,679.80
MDX Mindax Limited 0.035 3% -13% -51% 1067% $ 66,672,752.13
MGT Magnetite Mines 0.037 12% 32% -14% 164% $ 119,728,381.48
MGU Magnum Mining & Exp 0.105 13% 22% -40% 67% $ 49,714,491.40
MGX Mount Gibson Iron 0.455 2% 20% -52% -54% $ 544,755,614.85
MIN Mineral Resources. 64.35 6% 30% 7% 62% $ 12,269,598,208.67
MIO Macarthur Minerals 0.355 4% -4% -38% -28% $ 51,524,997.14
PFE Panteraminerals 0.21 5% 8% 0% 0% $ 8,570,000.00
PLG Pearlgullironlimited 0.077 5% 5% 0% 0% $ 4,041,444.68
RHI Red Hill Iron 3.23 -5% 4% 280% 1094% $ 203,611,795.31
RIO Rio Tinto Limited 109.65 3% 12% -16% -9% $ 40,844,920,026.42
RLC Reedy Lagoon Corp. 0.043 16% 48% 153% 153% $ 24,105,718.12
SHH Shree Minerals Ltd 0.015 50% 67% 0% -35% $ 18,075,027.16
SRK Strike Resources 0.14 0% 40% -55% -33% $ 40,500,000.00
SRN Surefire Rescs NL 0.011 -8% 0% -21% -58% $ 12,147,414.50
TI1 Tombador Iron 0.044 22% 22% -53% -40% $ 52,543,665.89
TLM Talisman Mining 0.165 -7% 3% -8% 70% $ 31,915,714.49
VMS Venture Minerals 0.046 -2% 21% -63% -30% $ 78,488,006.82
EQN Equinoxresources 0.245 23% 23% 0% 0% $ 11,025,000.25

 

Coal miners revel in high prices

More Australian coal cargoes cleared customs in China in the December quarter but experts maintain the ban on Aussie product will remain through 2022 despite the Indonesian coal export ban putting strain on the seaborne market.

“We see little chance of an end to current bans on Australian coal imports this year, and major improvements in global bilateral relations are probably too much to ask,” WoodMac’s Robin Griffin said.

“Prices for energy commodities in China will remain higher-than-necessary, with implications for energy prices that in turn affect producers and consumers of M&M products.”

Not that Australian miners can be too upset.

Prices almost touched US$450/t for top quality Australian coking coal this week. Thermal coal is trading upwards of US$220/t amid the squeeze on exports from Indonesia, the seaborne trade’s largest supplier.

One Australian cargo for February laycan reportedly changed hands for US$300/t according to the GlobalCoal platform, which reports the Newcastle 6000kcal thermal benchmark price.

Whitehaven Coal remains bullish on the price outlook for the energy commodity despite seeing wet weather and Covid absenteeism eat 1Mt out of its production guidance last week.

“We see further tightness, our customers really are screaming out for coal, so we’d love to have a bit more, and I think that underpins a good market going forward,” managing director Paul Flynn said on an analyst call on Friday.

“It’s definitely a much improved market from what we’ve seen in the past. You just look at those average revenue numbers a year ago versus now and that is quite a considerable change.”

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.014 -13% 27% 8% 0% $ 21,538,483.65
CKA Cokal Ltd 0.145 -12% 0% 38% 79% $ 145,537,091.90
NCZ New Century Resource 2.1 -16% 4% -36% -38% $ 302,588,547.03
BCB Bowen Coal Limited 0.16 -9% -6% 141% 264% $ 216,623,737.94
LNY Laneway Res Ltd 0.006 0% 0% 20% -14% $ 25,698,395.60
GRX Greenx Metals Ltd 0.255 0% 19% -1% 1% $ 64,859,152.60
AKM Aspire Mining Ltd 0.084 -3% 2% 18% -16% $ 43,656,780.71
PAK Pacific American Hld 0.017 -6% 6% 7% -24% $ 8,123,915.83
AHQ Allegiance Coal Ltd 0.53 4% 7% -27% 25% $ 224,146,580.50
YAL Yancoal Aust Ltd 2.74 -7% 5% 32% 14% $ 3,684,026,029.23
NHC New Hope Corporation 2.19 -9% -4% 16% 49% $ 1,881,127,005.32
TIG Tigers Realm Coal 0.02 -17% -5% 122% 100% $ 261,334,047.36
SMR Stanmore Resources 1.16 3% 12% 61% 38% $ 324,487,609.20
WHC Whitehaven Coal 2.63 -10% -4% 17% 65% $ 2,736,507,214.80
BRL Bathurst Res Ltd. 0.8 -2% 10% 14% 33% $ 136,761,298.40
CRN Coronado Global Res 1.315 -4% 6% 32% 7% $ 2,355,417,490.65
JAL Jameson Resources 0.077 8% 10% -33% -30% $ 26,811,655.02
TER Terracom Ltd 0.185 0% 3% 42% 23% $ 143,185,449.70
ATU Atrum Coal Ltd 0.026 -10% -4% -51% -90% $ 17,881,196.74
MCM Mc Mining Ltd 0.099 24% -6% -14% -32% $ 15,287,535.95
JNO Juno 0.12 4% 0% -47% 0% $ 16,278,960.12
LCY Legacy Iron Ore 0.023 -8% 0% 44% -41% $ 147,357,002.58
MAG Magmatic Resrce Ltd 0.098 1% -2% -35% -41% $ 25,448,679.80
MDX Mindax Limited 0.035 3% -13% -51% 1067% $ 66,672,752.13
MGT Magnetite Mines 0.037 12% 32% -14% 164% $ 119,728,381.48
MGU Magnum Mining & Exp 0.105 13% 22% -40% 67% $ 49,714,491.40
MGX Mount Gibson Iron 0.455 2% 20% -52% -54% $ 544,755,614.85
MIN Mineral Resources. 64.35 6% 30% 7% 62% $ 12,269,598,208.67
MIO Macarthur Minerals 0.355 4% -4% -38% -28% $ 51,524,997.14
PFE Panteraminerals 0.21 5% 8% 0% 0% $ 8,570,000.00
PLG Pearlgullironlimited 0.077 5% 5% 0% 0% $ 4,041,444.68
RHI Red Hill Iron 3.23 -5% 4% 280% 1094% $ 203,611,795.31
RIO Rio Tinto Limited 109.65 3% 12% -16% -9% $ 40,844,920,026.42
RLC Reedy Lagoon Corp. 0.043 16% 48% 153% 153% $ 24,105,718.12
SHH Shree Minerals Ltd 0.015 50% 67% 0% -35% $ 18,075,027.16
SRK Strike Resources 0.14 0% 40% -55% -33% $ 40,500,000.00
SRN Surefire Rescs NL 0.011 -8% 0% -21% -58% $ 12,147,414.50
TI1 Tombador Iron 0.044 22% 22% -53% -40% $ 52,543,665.89
TLM Talisman Mining 0.165 -7% 3% -8% 70% $ 31,915,714.49
VMS Venture Minerals 0.046 -2% 21% -63% -30% $ 78,488,006.82
EQN Equinoxresources 0.245 23% 23% 0% 0% $ 11,025,000.25