In one of the big iron ore headline makers of the past month the WA Government has released its new plan for Port Hedland, the world’s largest iron ore export hub.

The Pilbara Ports Authority has already pushed its export rate beyond the 495Mtpa envisaged in a port plan now a decade old, pushing 523Mt of red dirt out of the harbour in 2021.

At a planned rate of 660Mtpa, the prospect Australia could deliver 1Bt of iron ore annually to Asia in a few years is not out of the question.

All of the port’s major users were regarded as ‘winners’ in the deal. FMG (ASX:FMG) and BHP (ASX:BHP) will get 25% of extra capacity.

The world’s largest exporter of mid-grade iron ore, Rio Tinto (ASX:RIO) will be unaffected given it uses the Ports of Dampier and Port Walcott as its main shipping hubs.

Meanwhile, MinRes (ASX:MIN) and Gina Rinehart’s Hancock Prospecting will get the right to develop a new export facility at South West Creek managed by Roy Hill that will foster the development of MinRes’ 20Mtpa Marillana and Opthalmia mines as well as Rinehart and Roy Hill’s expansion projects.

With the promise of so much ore coming to market, it raises questions of whether the volume over value days could be reemerging in iron ore and threaten the delicate supply-demand balance that underpins the commodity’s volatility.

Is the announcement all it’s cracked up to be though?

 

Ports not the issue for major miners

It is important (geddit?) to remember as well that the investments required to deliver the extra US$20 billion of exports envisaged by the port’s expansion will need to come from the companies themselves.

These are already happening in some cases, for instance the development of a new transhipment area for FMG’s 22Mtpa Iron Bridge magnetite mine which will open by the end of 2022.

Others could be some way down the track.

Iron ore market expert Mark Eames, whose time in the industry has included stints as an executive at BHP, Glencore and Rio, told Stockhead the biggest bottlenecks were not actually at the port itself, but at the mines and unloading at the berth.

“To me it’s like you’re stuck in a traffic jam in Sydney and someone’s told you they’re putting in a new freeway in Queensland,” Eames said.

“It’s good news, that’s not going to be a bottleneck. But that in itself doesn’t mean the exports are going to go up.

“In fact, quite the contrary, it’s not where the big dollars are and it’s not where the bottleneck is.”

He noted that even in a year in 2021 when prices hit record highs in May, delivering prices of over US$200/t, Rio’s production went down.

BHP and FMG also face headwinds to production growth given many of their new developments are in the replacement tonnes category.

“The big story I think in the Pilbara is this continued inability of the majors, and if I include Vale in Brazil, the Big Four players have really, really struggled to lift their tonnes,” Eames said.

“And the tonnes essentially have been the same out of the big four for the last seven years.

“So if we look at the recent production reports, Rio its shipments were down 4% last year, which I think is absolutely staggering given that the prices hit over US$200 in the middle of the year,” Eames said.

“So they had absolute record high prices and actually managed to get the shipments down, so that tells you something about their struggle.

“BHP probably I would say is a bit of a tick. They’re on track for their guidance, but nothing more. But they’re in the middle of a major shift from a mine called Yandicoogina to a mine called South Flank which is a three year ramp up.

“So watch this space, it’s certainly not easy for them to maintain that level of throughput (280-290Mtpa). Vale’s just reduced its guidance, and FMG is very slightly up.

“But the net position is, we’re seeing at best a few 10s of millions of tonnes up and down. Some of the producers have got some port constraints as well, but the bottleneck is mostly in the mines.”

 

Is demand for low grade ores on the decline?

A lot of the press around the port expansion was focused on billionaires Chris Ellison and Gina Rinehart’s status as “big winners” after getting access to the South West Creek berth for the proposed shared development by MinRes and Hancock.

In MinRes’ case this will help the company develop one of two low-cost but low grade iron ore hubs in the Pilbara.

The first to be developed – the separate West Pilbara hub shipping out of the Port of Ashburton – will run at operating costs of ~$35/t, providing MinRes with an operation it says will be profitable at any stage in the iron ore cycle.

Its half year results last week were a bitter pill as rising freight costs and high discounts for its lower grade iron ore saw the company generate an underlying loss and dump its half-year dividend.

Eames, technical director of high grade iron ore developer Magnetite Mines (ASX:MGT), said while a number of developments have been proposed in recent years, many like MinRes’ West Pilbara developments are relatively low in grade.

“That’s not the material that the market is demanding at the moment,” Eames said.

“We’re seeing very strong premiums for high grade, very large discounts for low grade, I think the big news recently was Fortescue announcing it had quite low price realisations for lower grade ores, which has confirmed what I think everybody’s seen.

“And that’s not a comment about Fortescue. But it’s just a comment that the market’s demanding higher grade ores and those are the projects which are really in short supply.”

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% -7% $ 26,097,527.85
ADY Admiralty Resources. 0.018 6% 38% 6% 29% $ 27,375,162.21
AKO Akora Resources 0.37 -5% 42% 68% -3% $ 18,843,644.16
BCK Brockman Mining Ltd 0.06 -6% 20% 46% 20% $ 566,033,159.99
BHP BHP Group Limited 48.18 2% 3% -9% 8% $ 244,662,079,772.70
CIA Champion Iron Ltd 6.8 1% 8% 11% 25% $ 3,602,010,438.36
CZR CZR Resources Ltd 0.008 0% 0% -20% -33% $ 27,890,586.22
DRE Drednought Resources 0.039 -7% -5% -11% 117% $ 113,547,342.04
EFE Eastern Resources 0.054 -7% -33% 200% 382% $ 54,131,515.57
CUF Cufe Ltd 0.039 -3% 0% -43% -26% $ 40,682,831.70
FEX Fenix Resources Ltd 0.23 -8% -21% -30% -6% $ 125,553,480.00
FMG Fortescue Metals Grp 21.59 0% 1% -3% -9% $ 70,046,451,884.50
FMS Flinders Mines Ltd 0.515 -1% -8% -41% -65% $ 86,957,017.16
GEN Genmin 0.205 -9% -21% -18% 0% $ 56,457,570.00
GRR Grange Resources. 0.785 -10% -7% 32% 145% $ 966,377,812.83
GWR GWR Group Ltd 0.17 3% -11% -36% -43% $ 53,606,831.34
HAV Havilah Resources 0.175 -8% -17% -10% -15% $ 55,765,216.26
HAW Hawthorn Resources 0.09 1% -18% 100% 0% $ 31,683,983.24
HIO Hawsons Iron Ltd 0.185 -14% -24% 48% 438% $ 135,860,060.50
IRD Iron Road Ltd 0.185 0% 3% -12% -38% $ 151,146,532.35
JNO Juno 0.115 -4% -4% -38% 0% $ 15,600,670.12
LCY Legacy Iron Ore 0.018 -5% -22% 20% -33% $ 115,322,871.58
MAG Magmatic Resrce Ltd 0.098 9% -2% -30% -35% $ 24,939,706.20
MDX Mindax Limited 0.043 0% 19% -12% 1333% $ 80,007,302.55
MGT Magnetite Mines 0.034 -8% -19% -3% 26% $ 113,606,887.72
MGU Magnum Mining & Exp 0.073 0% -22% -39% -8% $ 36,291,578.72
MGX Mount Gibson Iron 0.52 17% 11% -32% -41% $ 671,865,258.32
MIN Mineral Resources. 48.44 -18% -26% -21% 35% $ 9,663,465,296.87
MIO Macarthur Minerals 0.37 0% 4% -30% -42% $ 55,153,518.06
PFE Panteraminerals 0.195 -3% -5% -49% 0% $ 8,570,000.00
PLG Pearlgullironlimited 0.066 6% -10% 0% 0% $ 3,568,650.02
RHI Red Hill Iron 3.77 32% 18% 13% 1183% $ 229,781,336.40
RIO Rio Tinto Limited 118.75 4% 7% -1% 1% $ 45,132,467,298.12
RLC Reedy Lagoon Corp. 0.028 -10% -30% 27% 0% $ 16,435,716.90
SHH Shree Minerals Ltd 0.018 -25% 29% 64% 6% $ 22,327,974.73
SRK Strike Resources 0.115 -12% -21% -47% -41% $ 33,750,000.00
SRN Surefire Rescs NL 0.015 15% 36% 0% -48% $ 17,668,966.54
TI1 Tombador Iron 0.038 -7% -27% -42% -57% $ 42,482,112.84
TLM Talisman Mining 0.17 3% 0% -15% 83% $ 33,793,109.46
VMS Venture Minerals 0.04 -7% -15% -60% -33% $ 66,798,303.68
EQN Equinoxresources 0.21 0% -16% 0% 0% $ 9,900,000.22

 

China kicks emissions reductions can down the road

Another factor in iron ore’s favour is the demand side, where China appears to have relaxed its tough stance on emissions.

Having previously planned to hit peak emissions from the steel industry by 2025, China’s industry ministry has kicked that can down the road.

Xi’s China remains unwilling to sacrifice its very much industrial based economic growth after scrambling to save the debt-addled housing market last year.

“China announced last year that it would be targeting a peak in emissions from the steel industry by 2025. However, in a statement from the Ministry of Industry and Information Technology, this has now been pushed out to 2030,” ANZ commodities strategists Daniel Hynes and Soni Kumari said.

“Without the constraint of a tough emissions target, we suspect Chinese steel production will revert to growth over the coming years.

“This should be supported by growth stabilisation measures. This will ultimately see the iron ore market remain tight.”

Eames said what could have been used as an opportunity to effect a major structural reform in the steel market was more business as usual.

“Their targets for 2035 are to be low emissions ready, which I’m not sure what that means, that their energy efficiency should be improved by 2%, and that they increase their electric arc furnace production of steel up to 15% by 2025, from around 10% today,” he said.

“So if I put that together what’s interesting is that it’s basically more of the same. Of course, they’re going to increase scrap recycling.

“They’ve got more scrap available as they recycle the very large numbers of cars and whitegoods, structural steel that was put into the economy 10 or 20 years ago, inevitably their scrap recycling is going to go up, there’s no news in that.

“Secondly, the hard targets for energy reform and emissions reduction are actually quite vague.

“My interpretation of that is really business as usual, they could have come out with very strong push for low emissions steel.

“They could have come out with major changes in pollution regulations, they could have come out with production targets and constraints, all of the actions that actually we’ve seen in China in the last six months. But there isn’t really any mention of that.”

China has taken measures in recent days to hammer down prices through its fairly standard complaints about speculation, conducting inspections of physical markets at mills and ports.

According to Reuters, e-commerce platform esteel.com even retracted a statement – bullish for iron ore prices – that Rio Tinto and Atlas Iron shipments could be down, saying it had not been verified or checked with the companies and comprised ‘false information’.

Even more directly, the Dalian Commodities Exchange has doubled transaction fees, crimping demand for iron ore futures contracts, handing the most traded May contract three heavy consecutive single day losses, including a 9.7% collapse that almost hit the 10% downwards limit.

Singapore futures for March tumbled 7.25% to US$137.65/t.

 

Coal boom could make struggling junior a dividend payer

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.015 -21% -21% 36% 25% $ 22,974,382.56
CKA Cokal Ltd 0.165 0% 3% 22% 112% $ 159,621,326.60
NCZ New Century Resource 1.89 -8% -24% -32% -32% $ 258,051,704.61
BCB Bowen Coal Limited 0.23 10% 33% 64% 336% $ 301,960,361.97
LNY Laneway Res Ltd 0.007 17% 0% 56% 17% $ 28,359,065.60
GRX Greenx Metals Ltd 0.19 -14% -32% -34% -28% $ 51,992,195.12
AKM Aspire Mining Ltd 0.08 -2% -8% 7% -17% $ 43,149,143.73
PAK Pacific American Hld 0.018 6% 6% 21% -12% $ 8,123,915.83
AHQ Allegiance Coal Ltd 0.54 4% 6% -23% 20% $ 196,859,170.70
YAL Yancoal Aust Ltd 3.23 8% 10% 35% 32% $ 4,383,858,930.84
NHC New Hope Corporation 2.47 1% 7% 18% 105% $ 2,155,804,842.38
TIG Tigers Realm Coal 0.018 0% -22% 80% 100% $ 222,133,940.26
SMR Stanmore Resources 1.18 1% 5% 59% 57% $ 324,487,609.20
WHC Whitehaven Coal 3.05 7% 9% 28% 102% $ 3,263,155,773.12
BRL Bathurst Res Ltd. 0.785 1% -4% 15% 78% $ 132,487,507.83
CRN Coronado Global Res 1.465 -2% 5% 36% 21% $ 2,573,356,475.55
JAL Jameson Resources 0.075 0% 6% -21% -17% $ 26,115,248.40
TER Terracom Ltd 0.305 33% 65% 97% 110% $ 207,242,098.25
ATU Atrum Coal Ltd 0.024 -4% -17% -45% -90% $ 17,284,208.40
MCM Mc Mining Ltd 0.081 -17% -11% -35% -51% $ 14,669,857.73

Terracom (ASX:TER), which refinanced its maturing debt facilities less than 12 months ago, has taken advantage of the boom in coal prices to radically change its fortunes.

The speed of its debt repayments could see it in a position by the September quarter or even earlier to consider dividend payments to shareholders.

Terracom, which owns the Blair Athol mine in Queensland along with coal mines in South Africa, says it has repaid US$64.4 million in just seven months since July 1 last year.

It will have just US$102.6m left to pay on its Euroclear bond after US$15m comes off in February. At that rate it is set to clear its debt later in the year.

“Debt reduction continues to be a key focus and the Company is committed to channelling all free cash flow to reduce the Euroclear Bond as quickly as possible,” Terracom chairman Craig Ransley said.

“Based on steady state operation, it is forecast that the Euroclear Bond will be fully repaid in the September 2022 Quarter, noting that other initiatives currently underway may rapidly accelerate this timeframe which will allow the Company to focus on its primary objective of returning dividends to shareholders.

“Strong demand in the export coal market has resulted in pricing remaining attractive and based on economic outlook; we expect this to remain for the near future.”

Blair Athol delivered $38.5m in positive EBITDA in the month of January alone. That compares to just $8.2m for the whole of the March quarter last year. Add in $16.4m from the lower margin South African operations and Terracom raked in $54.9m in earnings in a month.

Premium hard coking coal FOB Dalrymple Bay Coal Terminal in Queensland was again trading at a premium to Chinese prices at US$441.97/t according to Fastmarkets MB on Friday.

Tight supplies and strong non-Chinese steel production levels have led Australian coal prices to rally to record highs this year.

$200 million capped Terracom’s shares are up 90% over the past 12 months, and over 30% year to date.

 

Terracom share price today:

 

 

At Stockhead, we tell it like it is. While Magnetite Mines is a Stockhead advertiser, it did not sponsor this article.