• High prices, low discounts set stage for development of CZR’s Robe Mesa deposit in the Pilbara
  • Rio Tinto ramps up low grade iron ore sales to lift output
  • With CZR on Rio’s doorstep could the DFS finally be the trigger for a takeover?

 

Mark Creasy, already a billionaire through his holdings largely in nickel and lithium miner, IGO (ASX:IGO) could be inching toward a new calling as an iron ore producer.

The famous Perth prospector owns more than 50% of CZR Resources (ASX:CZR), owner of the Robe Mesa deposit adjacent to Rio Tinto’s (ASX:RIO) Robe Valley mines, which include the Robe River JV from where over 1.7 BILLION TONNES have been shipped over the past 51 years.

CZR’s Robe Mesa is a far more modest prospect, containing 33.4Mt in reserves at an average grade of 55% Fe or 61.6% Fe in calcined iron content.

A DFS yesterday demonstrated the project would generate $824 million in life of mine EBITDA at a long-term 62% Fe iron ore price of US$90/t with an NPV8 of $256m and IRR of 62%. On spot prices of US$117/t, that would rise to over $2 billion, $820m and 159%, with capex payback falling from 2.5 to 1.5 years.

Product discounts are also better now than CZR has forecast. The study assumes its product runs at a 22.5% discount to the 62% benchmark price — that’s currently around 18-19% as Chinese steel mill owners look to save on input costs.

CZR plans to produce 3.5Mtpa over the first four years of the boutique operation, lifting to 5Mtpa over its final four years as export capacity opens up. It has joined with fellow junior Strike Resources (ASX:SRK) to propose a new export terminal for iron ore out of the Port of Ashburton.

That would save over 500km on a trip to the traditional junior iron ore export hub at Utah Point in Port Hedland.

Between the shorter export route and 0.6:1 strip ratio, the company says it will deliver C1 costs of just $49 per wet metric tonne FOB. Converted to US dollars, that comes in at around 1.5-2 times the cost base of the Pilbara giants of BHP (ASX:BHP), Rio and Fortescue (ASX:FMG).

 

Production by 2025

The iron ore junior surged almost 30% in early trade, adding around $5 million to Creasy’s stake in the Pilbara hopeful.

An FID is due in the second quarter of 2024, with exports to begin in the first half of 2025, something which looks achievable on today’s numbers barring a major collapse in iron ore prices and assuming its long-touted port solution clears approval hurdles.

UBS this week lifted its long term forecast for iron ore from US$65 to US$85/t. JPMorgan previously upped iron ore forecasts for end 2023 to US$117/t, lifting its expectations for 2024 13% to US$110/t, well above most Big Four bank forecasts.

It thinks 62% Fe iron ore will still fetch US$105/t in 2025, 17% up on previous forecasts. While China’s property sector has wobbled all year, steel output has remained strong amid growth in infrastructure, car making and manufacturing industries as the country tries to return to a GDP growth rate of around 5% this year.

While conventional wisdom suggests a rising motivation to curb emissions should see premiums for high grade iron ore increase and discounts for low grade iron ore expand, CZR managing director Stefan Murphy told Stockhead the market was going in another direction right now.

Steel mills are seeing demand for their products, but not enough to support high margins. They like products like the low grade fines CZR will ship from Robe Mesa, which is in a similar class to the 56.5% Fe Super Special Fines blend sold by Fortescue (ASX:FMG).

“What we’re really seeing at the moment, and we have for basically this entire year, is much, much narrower margins between the higher grade and the lower grade feeds,” Murphy said. “But also that’s in the backdrop of there being a really soft property market.

“So you have to ask the question, once the stimulus starts to properly kick in and the government can clean up some of the mess with the property developers, and the demand for steel comes back — which then flows through to iron ore — what happens to the iron ore price then?

“So if we’re meant to be in a really low demand environment, but we’re at US$120 per tonne, we really do see that there’s a lot of potential for iron ore to at least stay at these levels if not improve.”

Robe Mesa is low in silca and alumina and contains a high proportion of goethite, a third iron ore mineral alongside the better known hematite (the source of most Pilbara ores) and magnetite (a lower grade mineral which can be upgrade into a super-premium high grade concentrate).

Fines made from goethite rich ore are high in moisture and perform well in the sintering process, which turns iron ore fines into a solid higher grade material for use in the blast furnace. Other major deposits with high goethite content include BHP’s (ASX:BHP) Yandi and Mineral Resources’ (ASX:MIN) Ken’s Bore.

 

Rio eats grade discounts

It comes as Rio Tinto looks to bridge a gap to the development of its next major Pilbara mine, the Rhodes Ridge joint venture with the descendants of Lang Hancock’s business partner Peter Wright.

The high quality 6.8Bt Rhodes Ridge deposit — including 5.3Bt above the 62% benchmark fines grade and 600Mt at a premium 63.9% Fe — is the next major prospect in the Pilbara pipeline for Rio Tinto, which wants to inch up from its 2023 guidance of 320-335Mt to as much as 360Mt in the mid term.

Until it can be developed Rio faces the prospect of increased low grade ore sales, after iron ore boss Simon Trott revealed at an investor presentation on Monday that its lower grade SP10 blend would make up 45-50Mt of shipments in FY23, 13-15% of its 320-335Mt total.

It had previously guided the discounted product to make up “over 10%”, but said the higher than forecast number reflected higher overall output that would see it hit the upper end of guidance as well as delayed access to mine areas.

Shipments will lift even further in 2024 to 323-338Mt if Rio can, like this year, get towards the top half of guidance. Once Rhodes Ridge is in place the 62% Pilbara Fines blend will make up more than 85% of Rio’s product mix.

To hit its aim of producing 345-360Mt out of the Pilbara, which will likely come alongside the development of the massive Simandou orebody in Guinea, four replacement mines will need to be approved and delivered over the next five years. Construction of the suite is expected to begin next year subject to approvals, hitting first ore in 2027 and 2028.

An incremental capital investment of US$70 million during 2025 will also take its newest mine, the 43Mtpa Gudai-Darri to 50Mtpa, with US$1.8b in sustaining capex, US$1.8b of replacement capital and US$200m of decarbonisation capital expected to be spent each year between 2024 and 2026.

Rio said Monday that an order of magnitude study at Rhodes Ridge should be finished this year with an initial 40Mtpa capacity, hoping to have the long locked up deposit in production before the end of the decade.

Rio waved off 83.9Mt of shipments in the September quarter, taking its total to 245.6Mt for the nine months to September 30, around 5% up on 2022.

If it hits a similar rate in the traditionally strong December quarter Rio will come close to hitting total shipments of 330Mt having hit initial guidance for the first time in years in 2022.

However, blasts at the Nammuldi mine remain paused after it emerged a nearby rock shelter — a cultural site for the Muntulgura Guruma People — was unintentionally disturbed after a blast in August.

 

Could CZR be a Rio target?

Rio’s trend back to lower grade feed is of interest to Murphy, whose deposit is effectively an extension of its Robe River mines.

Rio was until late last year conducting drilling at the undeveloped Mesa F deposit where Murphy said spacing was commensurate with that needed for a reserve drill out.

While the DFS showed CZR could go it alone on Robe Mesa, he said the deposit would be worth more to Rio than anyone else, given its existing logistics network.

“There is latent capacity in their supply chain and when you can put the iron ore onto a ship a lot cheaper than us, then it makes sense,” Murphy said.

“And the question is really where does it fit within their production profile, how many years into the future, what is it worth?

“So we’ve always said we’re confident that this can be a standalone project, but we’re also very mindful that it’s probably worth more to Rio than anybody else.”

 

ASX iron ore stocks

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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.008 0% 0% -68% -68% $ 3,785,018.26
ADY Admiralty Resources. 0.006 0% 0% -14% -25% $ 19,597,489.00
AKO Akora Resources 0.135 -13% -25% -25% -29% $ 13,772,508.03
BCK Brockman Mining Ltd 0.027 -10% 13% -7% 23% $ 250,566,267.54
BHP BHP Group Limited 44.15 1% 2% -2% 10% $ 223,176,612,821.61
CIA Champion Iron Ltd 6.08 0% 4% -10% 19% $ 3,093,428,495.30
CZR CZR Resources Ltd 0.175 17% 25% 3% -26% $ 31,824,177.21
DRE Dreadnought Resources Ltd 0.045 -8% -21% -34% -51% $ 154,961,259.12
EFE Eastern Resources 0.009 0% 0% -22% -78% $ 12,419,464.61
CUF Cufe Ltd 0.013 -13% -7% -13% -13% $ 14,899,460.75
FEX Fenix Resources Ltd 0.22 -6% -6% -8% -15% $ 156,186,432.00
FMG Fortescue Metals Grp 20.83 0% 7% -3% 18% $ 63,642,204,855.06
RHK Red Hawk Mining Ltd 0.65 -4% -13% 63% 8% $ 114,817,032.36
GEN Genmin 0.18 0% 0% -5% -28% $ 81,275,982.12
GRR Grange Resources. 0.44 -7% 0% -35% -44% $ 515,015,720.61
GWR GWR Group Ltd 0.072 -14% -21% -5% 6% $ 23,127,599.16
HAV Havilah Resources 0.245 -2% 0% -21% -21% $ 77,576,606.45
HAW Hawthorn Resources 0.091 0% -27% 30% 1% $ 33,501,561.30
HIO Hawsons Iron Ltd 0.053 20% 61% -15% -86% $ 46,872,624.01
IRD Iron Road Ltd 0.08 0% 0% -26% -45% $ 65,616,077.76
JNO Juno 0.078 1% 16% -14% -21% $ 10,581,324.08
LCY Legacy Iron Ore 0.02 11% 18% 18% 5% $ 121,729,697.78
MAG Magmatic Resrce Ltd 0.061 -13% 0% -45% -47% $ 18,341,567.88
MDX Mindax Limited 0.052 4% 4% -66% -12% $ 106,369,056.56
MGT Magnetite Mines 0.3 2% -14% -49% -76% $ 22,261,864.21
MGU Magnum Mining & Exp 0.025 0% -38% 19% -31% $ 20,096,535.08
MGX Mount Gibson Iron 0.44 -2% 1% -12% 6% $ 522,200,313.19
MIN Mineral Resources. 60.85 -5% -12% -20% -14% $ 11,603,833,144.60
MIO Macarthur Minerals 0.17 0% -11% 21% 6% $ 28,229,092.96
PFE Panteraminerals 0.057 -3% -15% -37% -50% $ 5,489,472.13
PLG Pearlgullironlimited 0.026 0% 13% -30% 19% $ 5,318,086.54
RHI Red Hill Minerals 4.44 -6% 8% 0% 30% $ 280,843,855.60
RIO Rio Tinto Limited 112.2 -1% 1% -4% 15% $ 42,021,675,424.80
RLC Reedy Lagoon Corp. 0.006 -14% 0% -23% -56% $ 3,700,101.53
CTN Catalina Resources 0.004 0% -20% -20% -56% $ 4,953,947.57
SRK Strike Resources 0.053 2% -4% -15% -50% $ 15,890,000.00
SRN Surefire Rescs NL 0.013 -7% -13% -41% 0% $ 23,119,088.68
TI1 Tombador Iron 0.014 17% -30% -44% -52% $ 30,218,753.22
TLM Talisman Mining 0.13 0% -7% -7% -7% $ 23,540,043.63
VMS Venture Minerals 0.01 -9% -23% -41% -60% $ 19,500,130.35
EQN Equinoxresources 0.17 -6% 0% 10% 21% $ 8,100,000.18
AMD Arrow Minerals 0.0025 0% 0% -44% -44% $ 7,559,412.74
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European coal stores, Chinese production keep coal prices at ease

Front month Newcastle thermal coal futures are back under US$150/t, trading at around US$145/t yesterday as weak European demand and strong domestic supply from China kept demand in check.

That compared to solid demand for met coal, with premium hard coking coal still paying upwards of US$350/t.

Westpac’s Justin Smirk said in a note last week there were now downside risks to its forecast that thermal coal would trade at US$150/t by year’s end and US$130/t by the end of 2024.

He thinks met coal will ease to US$315/t by December 31 and US$238/t at the end of 2024.

“Thermal coal prices remain more exposed to a correction than met coal. It appears that Chinese demand has softened as even a fire in a mine in Guizhou, which has hit supply, could not lift domestic prices,” he said.

“As such, the fundamentals for thermal coal remains weak and it does appear that the continuing disconnect between high and low calorific coals may be due, at least in part, to market speculation. It is likely that China’s coal supply will remain robust through the remainder of 2023 pushing prices lower into the year end and through 2024.”

 

ASX coal stocks

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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.006 0% -25% 0% -14% $ 10,763,393.46
CKA Cokal Ltd 0.115 -8% 10% -26% -53% $ 124,079,132.70
BCB Bowen Coal Limited 0.115 -15% -8% -56% -67% $ 254,523,633.74
SVG Savannah Goldfields 0.065 2% -8% -58% -73% $ 13,028,614.76
GRX Greenx Metals Ltd 0.97 4% 0% 23% 273% $ 263,328,176.14
AKM Aspire Mining Ltd 0.079 -8% -20% 39% -17% $ 41,118,595.79
AVM Advance Metals Ltd 0.005 0% -17% -38% -55% $ 2,942,793.63
YAL Yancoal Aust Ltd 5.06 -3% 0% -15% -17% $ 6,694,627,945.59
NHC New Hope Corporation 6.345 0% 6% 8% -5% $ 5,283,346,650.00
TIG Tigers Realm Coal 0.0055 10% -8% -54% -69% $ 71,866,863.02
SMR Stanmore Resources 3.62 -1% 18% 9% 43% $ 3,217,968,133.38
WHC Whitehaven Coal 6.81 -2% 9% -2% -35% $ 5,621,957,268.48
BRL Bathurst Res Ltd. 1.015 0% 5% -1% 13% $ 194,230,176.70
CRN Coronado Global Res 1.735 -2% 9% 8% -1% $ 2,942,176,296.15
JAL Jameson Resources 0.051 0% 0% -27% -27% $ 19,967,066.10
TER Terracom Ltd 0.42 1% -20% -37% -61% $ 328,396,156.35
ATU Atrum Coal Ltd 0.005 0% 0% 0% -38% $ 6,958,495.86
MCM Mc Mining Ltd 0.095 -37% -30% -47% -67% $ 37,168,863.79
DBI Dalrymple Bay 2.76 -1% 0% 1% 31% $ 1,358,386,967.58
AQC Auspaccoal Ltd 0.12 -8% 9% -30% -63% $ 54,722,777.28
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