Bulk Buys: Is MinRes cooling on magnetite?
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The enthusiasm around green steel and high grade iron ore arguably hit its apex in 2021 as not only did iron ore prices hit all time highs, but also premiums and discounts spread to their widest points in years as high steel prices prompted mill owners to splurge on higher grade feed.
That prompted a wave of studies to investigate magnetite iron ore resources across the sector, both from juniors focusing squarely on that end of the iron ore market and from majors looking to diversify.
Magnetite iron ore is currently the only form that can be used in the greenest form of steelmaking using primary raw materials, direct reduced iron, a technology that could theoretically be powered in the future not by gas but by hydrogen.
While hematite iron ore is a higher grade in the ground, generally between 56-62% Fe without beneficiation, magnetite is found in accumulations that grade around 30% iron.
But with processing it can be turned into a concentrate and then pellet grading between 66-68% Fe.
Along with premiums, this can normally be used in DRI plants, where low levels of impurities are required compared to ore that is fed with coal into the more conventional but highly polluting blast furnace process.
Gina Rinehart’s Hancock Prospecting dusted off studies on its Hardey magnetite deposit, while Fortescue (ASX:FMG) took the step of finally developing the Iron Bridge magnetite mine, albeit well over time and budget as revealed by its US$4bn capex update this week.
Mineral Resources (ASX:MIN) meanwhile signalled its intentions to study that route back at its 2021 AGM.
When boss Chris Ellison announced the idea, it was a ploy to extend the life of its underperforming Yilgarn iron ore hub, which exported 7.7Mt at $99/t out of Esperance in FY23.
Part of a more than $500 million impairment booked on the carrying value of MinRes’ currently operating but depleting iron ore assets, which also include the Utah Point assets, the Yilgarn hub probably has around three years of life left, though it remains a cash generator of MinRes.
Time appears to be running out to extend its life and MinRes, which can largely count the recent boom in its share price to its massive lithium business, is making a strategic pivot in its iron ore division.
By the end of next year it hopes to have switched on its 35Mtpa Onslow iron ore mine, a potentially scalable hematite development shipping out of the Port of Ashburton in the Pilbara.
With that on the horizon and almost $2 billion of capex committed to the JV which includes major partners such as China’s largest steel producer Baowu, where does the magnetite option sit?
Ellison says he remains hopeful MinRes can, as it often does, find a solution.
But logistics, including the remoteness of the assets and distance from power and water infrastructure could well put the nail in the coffin.
“I was hopeful back then on magnetite in the Yilgarn. We still are. The team are down there, we’re pumping a lot of holes into a couple of deposits,” he said on a call with media after the release of MinRes’ FY23 results.
“Mt Richardson’s the main one that we’re looking at.
“The bigger concern that I have is that we’re so far away from infrastructure, so from power and water, it’s a big issue.
“And I’m starting to think that we need to be closer to the coast or in a different region. So my concern is that come three years down the track, the whole operation down at Yilgarn is probably going to come to an end.”
Though it was largely powered by a sharp lift in spodumene prices, MinRes ended the year lifting total dividends from $1 in 2022 to $1.90, including a 70c final dividend, in FY23.
Also distributing cash to shareholders but on a far smaller level was Fenix Resources (ASX:FEX), which paid a full year dividend for the third winter in a row.
It came as the small scale Mid West miner reported sales of 1.36Mt at C1 costs of $81.51/wmt (US$54/wmt) from its Iron Ridge mine near Geraldton, down from $88.83/wmt (US$62) in FY22.
Lower iron ore prices bit, but falling shipping costs — down from $44/dmt to $31/dmt — helped preserrve strong operating margins of $49/dmt against $57/dmt 12 months earlier.
It came after Fenix moved to buy its haulage contractor Newhaul to trim costs and late in the year picked up Mt Gibson Iron’s (ASX:MGX) Mid-West assets including the Shine mine and port infrastructure in a $15 million deal.
Fenix’s John Welborn-led board elected to pay out a fully franked final dividend of 2c per share — a $13.9m payout — after posting a net profit after tax of $29.3m with $76m cash in hand.
That was a big drop, however, from last year’s 5.25c per share payout, with Fenix shares falling 13.6% on the result.
62% Fe iron ore was trading in Singapore for a touch over US$110/t yesterday.
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Can Bowen Coking Coal (ASX:BCB) finally deliver on its promise?
Following the departure of its CEO Gerhard Redelinghuys last month, Bowen has completed a strategic review to focus on higher margin deposits within its network of Queensland coal mines.
Working with its contractor BUMA, Bowen says it will focus its attention on maximising output from the Ellensfield South Pit at its Burton complex over the Broadmeadow East Pit and Bluff PCI mine in a bid to ramp up output to 2.75Mt of ROM coal production a year.
The first module of the Burton plant is operating at its 2.75Mt nameplate, BCB said, enabling it to run without refurbishing the second module, with Ellensfield South potentially providing a bridge should Broadmeadow East have to pause production in the fourth quarter of 2024 after costings of $14-20m for the relocation of a high voltage powerline in the proposed Broadmeadow East mining area came in higher than expected.
Bluff meanwhile is under review because a big return in the Russian PCI trade has seen prices for the steelmaking coal product drop hard, while the Isaac River coking coal development project which sits next to BHP and Mitsubishi’s up for sale Daunia mine has also been placed on the market by Bowen to try raise cash.
$204 million Bowen has seen its shares fall over 75% in the past year, but recorded a 16.28% gain yesterday on news of the reshuffle.
“The coal industry has been historically characterised by price rises and falls and coal companies across the board are now taking action to weather softer pricing, tighter labour markets, and significantly increased input and operational costs,” new BCB CEO Mark Ruston said.
“Bowen will come out the other side in a stronger position. While it is disappointing that in the near term, we are curtailing our growth aspirations of 5Mtpa ROM, over the longer term, the Company remains well placed to capitalise on the forecast growth in global steel production for which our high-quality, low ash, and low sulphur coking coal is a critical input.”
While Bowen was in ramp up during last year’s coal price boom, incumbent producers have performed much better.
Bathurst Resources (ASX:BRL), which mines coking coal on New Zealand’s North and South Islands for domestic and export markets respectively saw net profit lift 197% to $90.5m in FY23 on the back of record EBITDA of $166.4m and revenue of $389m.
Bathurst more than doubled its cash balance to $163.1m at June 30, bolstered by hedging gains locked in early in the year amid high coal pricing.
Average prices for its exports rose from $290.5/t to $365.3/t between 2022 and 2023.
Prices have recently stabilised after falling heavily through the first half of 2023 from last year’s record highs, with Bathurst Resources CEO Richard Tacon saying export pricing levels remained strong.
High CV Newcastle grade thermal coal was up 6.1% yesterday to US$158.50/t as gas prices rallied, while coking coal futures were unchanged at US$256/t.
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