Bulk Buys: Gina gets into magnetite with iron ore deal
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Hancock Prospecting is making a big move into magnetite iron ore, this week inking an initial $9 million deal to farm into the Mt Bevan iron ore project owned by juniors Legacy Iron Ore (ASX:LCY) and Hawthorn Resources (ASX:HAW).
It’s an interesting move by multi-billionaire mining magnate Gina Rinehart.
Her bread and butter has been in bulk shipping hematite iron ore mines up in the Pilbara through Roy Hill, a private 60Mtpa producer and exporter.
Legacy has been drilling for shallow extensions of Juno Minerals’ (ASX:JNO) nearby Mt Mason hematite resource.
But the bigger prize at Mt Bevan, around 250km north-west of Kalgoorlie, is its indicated and inferred magnetite resource of 1.17Bt at 34.9% iron, the kind that gets processed into high grade concentrate.
What do you think of this deal Gina?
“Hancock recognises the shortage of staff Australia wide disrupts many projects and delays supplies.”
“We are a supporter of the government changing its policy where pension arrangements are concerned, so that pensioners can work should they so choose, without onerous tax resulting from their decision to work.”
Excuse me, what?
“Hancock is a very patriotic company that supports investment in Australia, primary industries and jobs in WA and Australia. When Mining does well, Australia does well.”
Magnetite projects are normally costlier to build than hematite mines due to the need to process the ore into a concentrate.
So why are they in focus for big iron ore producers like Hancock and Fortescue (ASX:FMG), which is partnering with steelmaker Formosa Steel to develop the ~US$3.5b Iron Bridge magnetite mine, especially at a time when iron ore prices appear to be falling?
The main reason is grade. Higher grade iron ore products are receiving large proportional premiums compared to index prices, given they are cleaner, more efficient and cheaper to process, and can be used in lower emissions steel making processes like direct reduced iron.
That means they will likely be better suited to the priority steelmaking technologies of the future than lower grade ores that have catered the insatiable appetite of China’s blast furnace fleet.
Yesterday benchmark 62% fines, similar to the product produced by BHP and Rio Tinto in the Pilbara, was fetching US$89.05/t according to Fastmarkets MB. By contrast, 58% fines were selling for just US$61.99/t while Brazilian 65% fines attracted US$104.10/t.
“The Mt Bevan project is an excellent opportunity for Hancock to further grow its portfolio in the iron ore business with higher grade, lower impurity iron ore products,” Hancock CEO Gary Korte said, acknowledging the role of grade in the deal.
“We look forward to working with the JV partners Legacy and Hawthorn to undertake the work programs and studies necessary to support a final investment decision.”
The agreement will give Hancock a 30% stake, with Legacy – ultimately backed by India’s largest iron ore producer NMDC – and Hawthorn sharing the rest 60-40.
It has sent the juniors’ shares up like a rocket over the past two trading days, with Legacy an astonishing 150% higher in a week.
Hawthorn, which counts among its major shareholders China’s Feng Hua at 36% and former Patrick boss Chris Corrigan of Waterfront dispute fame at 16%, is up more than 75% since the announcement.
Both have been more focused on gold than iron ore in recent times.
The excitement generated by the deal has made them standout in a market characterised by a fall in iron ore prices in recent weeks and months as steel production in China has slowed dramatically.
In October the Middle Kingdom’s steel empire produced just 71.58Mt. That is 23.3% lower than the same month in 2020 and down from a high of 99.5Mt in May, when prices for 62% iron ore climbed to a record of US$237/t.
It means China’s dream of producing no more steel than it did in a record 2020 (1.065Bt), for stated environmental reasons, is well within reach.
“The result indicates that policy objectives to lower crude steel output in H2 2021 is perhaps gaining more traction than expected,” Commbank analyst Vivek Dhar said.
“While reducing steel output to reduce emissions has been on the policy table since the end of last year, we have seen the nationwide policy gain more support since mid‑2021.
“China’s steel sector accounts for ~15% of China’s carbon emissions and will have to play a significant role to achieve China’s net zero emissions ambition by 2060.
“The goal to keep China’s steel output at 2020 levels this year is now looking very believable. China’s daily crude steel output just needs to average 2.88Mt/day in November and December to meet policy objectives.
“That’s above the 2.31Mt/day recorded last month.”
According to Dhar, who has forecast an average of US$100/t for iron ore for the December Quarter falling to US$85/t next year, steel demand has also been weaker in China.
“The fall in China’s steel mill margins and steel prices in the last few weeks despite the decline in China’s steel production indicates just how weak China’s steel demand was in October,” he said.
“Steel demand from China’s property construction sector, which accounts for ~30% of China’s steel demand, was particularly weak and primarily reflects the default risks facing China’s property developers.”
Given the Morrison Government is fuelled by a PR cocktail of perpetually half-full glasses it is not surprising its “Net Zero by 2050” modelling came out looking rosy.
Despite projecting a 51% fall in coal production by 2050 (much to the chagrin of critics who would rather that number, impossibly, be zero) the government maintains there will be more jobs in mining and energy on account of the new technologies emerging and yet to be invented it is relying on to get to net zero.
Not everyone is on the same page though, with Resources Minister Keith Pitt of “how big is the battery” fame emerging yesterday for another bonkers Sky News interview, this time with host Laura Jayes.
Seemingly oblivious to the contents of his government’s modelling released on Friday, Pitt reckons the modelling he’s seen shows thermal and metallurgical coal production in Australia falling by just 20% by the middle of the century.
“While there’s markets we’ll continue to supply,” he said.
“Those markets are strong, we expect them to extend out to about 2030, the price for thermal coal and met coal in fact is very, very high and it’s been very successful and people want our product.
“We believe the future of coal is very strong. The forecasts and modelling that I have say there’ll be extensions, in fact there’ll be even more demand out to 2030.
“We expect that to taper off peak by 2050 by 20% plus, but Australia’s coal is super high quality, it’s why people want it and that will be the case for decades to come.”
Pitt’s subsequent “modelling is modelling is modelling” line, when asked about the discrepancy between the government’s modelling and the one he claims to have at his fingertips, may not pass the smell test.
But prices for, in particular, met coal do show there is plenty of support for the commodity currently, and big names like BHP remain doubtful it can be replaced as part of the steelmaking process for several decades.
Chinese coking coal prices have fallen by almost US$100/t in the past week as the country has ramped up domestic production to cut its reliance on expensive imports.
Australian producers, who have not been supplying China since an unofficial trade ban in October last year, have not been hit as much.
Premium hard coking coal FOB Dalrymple Bay was selling for US$378.76/t Monday, while hard coking coal was fetching US$332.68/t.
While softer prices have seen coal stocks retreat in recent weeks, some are riding high off recent news. ASX-listed US coal producer Allegiance Coal (ASX:AHQ) is up 17% over the week announcing Monday it had sent off its first cargo from the New Elk mine in Colorado.
At Stockhead, we tell it like it is. While Allegiance Coal is a Stockhead advertiser, it did not sponsor this article.