Bulk Buys: House of Hancock banks $5 billion profit as Roy Hill hits iron ore record
Gina Rinehart’s spoils from the ongoing mining boom continue apace, with Hancock Prospecting banking a $5 billion profit for the third straight year despite falling iron ore prices.
Down 13% on the $5.8 billion generated in 2022, Hancock Prospecting raked in $13.221b in revenue, largely from its 70% stake of the Roy Hill iron ore mine and half-share of Rio Tinto’s (ASX:RIO) Hope Downs operations.
Roy Hill paid a $2.25 billion to its shareholders in FY23, when it shipped a record 63.3Mt of low grade iron ore, with another $800m declared in September, while Hancock booked $1.3b of NPAT on its share of the Rio Tinto operated Hope Downs JV, which exported 46.5Mt.
Another $401m of NPAT came via Atlas Iron, which produced 8.9Mt from the Mt Webberm Sanjiv Ridge and Miralga iron ore mines, which helped Atlas pay a maiden $225m dividend to Hancock in December, with a small profit also delivered through the divestment of four cattle stations held in the Kidman cattle empire acquired by Hancock a few years ago.
That gave Hancock and Rinehart a hand in around 120Mt of iron ore exports from the State of Western Australia, almost an eighth of the product shipped from the world’s largest iron ore export region.
Iron ore prices averaged US$119/t for benchmark 62% Fe fines in FY22, but fell to US$95/t last year.
They have since rallied, hovering around the US$120/t for much of the past three months.
For Gina Rinehart, the question is where next?
The extraordinarily strong run iron ore has enjoyed since the Brumadinho dam disaster in Brazil in January 2019, an event which knocked out a massive chunk of supply from major exporter Vale and was amplified by Covid, has made Hancock without peer the largest private company in Australia.
In total, its cumulative profits since 2020 have tallied up to over $20 billion, peaking in 2021 as iron ore prices surged late in the financial year to a record high of US$237/t at $7.33 billion.
The Roy Hill mine has less than 10 years to run on its current mine plan, but is planning to develop the McPhee Creek project to keep output above 60Mt, subject to approvals.
Rio Tinto is also plotting the development of the Hope 2 and Bedded Hilltop deposits at some point in the coming five years as replacement tonnes in a major brownfields expansion of its Pilbara iron ore operations.
Hancock also says it is undertaking ongoing exploration, drilling and development work on its own Mulga Downs deposit. Publicly, Hancock says it aims to enter construction there in 2025 with first ore on ship by 2027, operating at a rate of 20Mtpa for 30 years.
But yesterday’s annual report also saw Rinehart’s firm take its usual stab at red tape and approvals timeframes, warning Australia was running the risk of falling behind other western economies amid bureaucratic “overreach”. It is particularly pointed commentary given it alludes to the critical metals sector, where Rinehart has recently become a major player by taking a 19.9% stake in lithium developer Liontown Resources (ASX:LTR) and 18.9% stake in emerging explorer and takeover target Azure Minerals (ASX:AZS).
Hancock and South Korean partner POSCO have also paused plans to triple output from east coast gas play Senex Energy, citing domestic gas market intervention from the Federal Government.
“Approval timeframes and red tape have increased significantly over the recent years. The current policy environment, duplication of processes, overreach from all departments and delays to approvals is negatively impacting new investment into the mining industry and is reducing Australia’s competitiveness in the international resource sector,” Hancock said in its statement.
“The US, Canada and Europe, which have higher cost environments than developing economies, are providing significant support for resource development, in particular downstream processing for future metals.
“Australia’s competitiveness when it comes to value add continues to decline against other developed economies and its higher cost environment is increasingly uncompetitive against developing economies.
“Australia can and needs to do much more to reduce regulatory burdens and make investment welcome and development easier for its essential resources and related industries.”
Hancock is preparing for a longer stint in the Pilbara, with Roy Hill taking its first step to electrifying its rail operations overnight, as Wabtec unveiled what it called the world’s first 100% battery-powered heavy haul locomotive in Pennsylvania.
The 7MW loco, around half the power of similar diesel-electric locos, will be delivered to Roy Hill’s Pilbara operations next year. Roy Hill currently uses four Wabtec locos to pull 2700m long trains carrying 33,000t of ore.
The new loco, painted like much of Roy Hill’s gear in its iconic pink garb, will recharge through regenerative breaking along the 344km downhill run from the mine to the port.
“The FLXdrive locomotive represents not only a first for the Pilbara, but a first for the mining industry,” Hancock CEO Gerhard Veldsman said.
“The technological smarts that have gone into the development of the loco makes it well suited for our rail network. By using regenerative braking, it will charge its battery on the 344 kilometers (214 miles) downhill run from our mine to port facility and use that stored energy to return to the mine, starting the cycle all over again.
“This will not only enable us to realise energy efficiencies but also lower operating
Rio Tinto also purchased four FLXDrive trains in 2022 for use at its massive Pilbara ops, though they remain in what in an “R&D phase”.
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One of the strongest yielding stocks on the whole ASX of the past year, TerraCom (ASX:TER) was brought back to reality yesterday as weakening thermal coal prices saw the company halt its now regular stream of dividends.
Blair Athol sells a lower grade 5500kcal thermal coal from its Blair Athol mine in Queensland, but extraordinary prices in the last couple years have turned it from a miner once on death’s door to one paying dividends on a quarterly basis.
That included 23.5c a share across FY23, amounting to 72% of its profits, and $268m over the past 13 months.
The pause comes after realised prices from Blair Athol slid from $198/t in the June quarter to $176m in the September quarter.
The miner pulled in $35.2m of EBITDA, $20.5m at a margin of $48.3m in Queensland, where it expects to produce 2Mt of thermal coal in FY24. Its South African collieries delivered $14.7m of EBITDA at a margin of $9.2/t.
“The Board continues to maintain its commitment to return dividends to
shareholders when considered appropriate in accordance with the Company’s
dividend policy. The Board has decided there will be no dividend declared for the three months ended 30 September 2023 to ensure a strong capital base and liquidity are maintained at this time,” MD Danny McCarthy said.
“The Company looks forward to achieving a solid production result during the remaining 9 months of FY2024.”
Going the other way yesterday with a massive 15% gain was Indonesian coal play Cokal (ASX:CKA), which said first coal sales from its Bumi Barito Mineral met coal mine were imminent, waiting for water levels to increases so barges could collect coal from the Batu Tuhup Jetty.
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