Bulk Buys: MinRes cops big discount for iron ore, coal’s miracle run brings Bluff mine back from the dead
If there was any doubt about the importance of grade in iron ore, check out the latest numbers from Mineral Resources (ASX:MIN).
Chris Ellison’s miner suffered a 48% discount to average Platts 62% iron ore prices in the September Quarter.
That saw prices for its product fall to just US$78.32/t, down from US$178/t in the June Quarter.
MinRes said its price realisation was impacted by current quarter shipments priced on the lower September Platts price, and adjustments of US$33.8m for the finalisation of FY21 shipments.
But it also demonstrated the discounts steelmakers are placing on lower grade iron ores, which have come about due to a couple of reasons.
Firstly, coking coal prices have soared, rising to around US$600/t in China.
The higher the grade of iron ore, the less coking coal required to produce steel in a blast furnace.
This is a more short to medium term impact for now, with coking coal shortages likely to be alleviated eventually.
Secondly, Chinese steel mills are under pressure from the Communist Government to curb emissions.
This is a longer term impact that could see steel factories put under ever greater pressure to use higher grade ores that can maintain output at a lower environmental cost.
Iron ore cargoes were changing hands in Northern China at US$119.08/t on Monday according to Fastmarkets, but shipping costs and labour shortages have also placed additional burdens on WA miners and curbed margins.
MinRes joined BHP in citing a shortage of road train drivers as an issue, with WA’s border remaining shut to workers from Victoria, NSW and overseas.
Regardless, MinRes remains keen on expanding its iron ore business.
It currently operates the Utah Point Hub and Koolyanobbing operations in the Pilbara and Goldfields, respectively.
After producing 5Mt in the September Quarter, MinRes says it is on track to produce 21-22Mt this financial year.
Longer term its aim is to expand by developing a new 30Mtpa hub at Ashburton where it owns the Bungaroo South and Kumina tenements, while it has also splashed the cash this year to buy into the APIJV, owners of the West Pilbara Iron Ore project.
MinRes also paid $200 million up front for Red Hill Iron’s (ASX:RHI) 40% share of the Red Hill Iron Ore JV (where APIJV has the majority 60% interest) with a further $200 million to come when it makes the first shipment of iron ore from the project.
In its quarterly report yesterday, MinRes suggested the dip in iron ore prices would have no impact on its plans for developing the Ashburton hub.
“The project economics are compelling through all economic cycles,” the company said.
“The Company remains ready to execute as soon as final approvals are obtained.”
Fortescue Metals Group (ASX:FMG), will be the last of the major iron ore miners to report its quarterly on Thursday, and its results will be interesting given analysts expect its grade penalties to have also widened significantly in the September Quarter.
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Rio Tinto made a big overture to ESG-focused investors and funds after pledging to spend US$7.5 billion to significantly ramp up its decarbonisation targets by 2030.
Much of the 50% reduction in Scope 1 and 2 emissions will involve shifting the power supply at its Pilbara iron ore and east coast aluminium smelters to wind and solar, something that will involve the rollout of some 6GW of renewable energy.
Rio’s announcement came ahead of the Federal Government’s commitment to hit Net Zero in Australia by 2050 yesterday, and to the credit of a company whose ESG record is blotted by its decision last year to blow up 46,000yo Aboriginal rock caves, its policies seem to have more actual detail than Scott Morrison’s.
At the Scope 3 level – the more than 500Mt of emissions generated annually by Rio’s customers, most of them from steelmaking – it’s a bit tougher.
One thing that Rio executives told investors at their Capital Markets Day seminar last week would be important would be grade.
High grade iron ore will be the product of choice for direct reduced iron steelmaking, which does not require the use of coal and for which numerous investors are hoping green hydrogen can be a future feedstock.
That includes Simandou, the seemingly cursed Guinean iron ore mine described by Rio’s Bold Baatar as the “Rolls Royce” of iron ore with a grade of 67% and few impurities.
Rio will just have to navigate a political minefield in a country which just suffered its third military coup, get the Chinese-led owners of the other Simandou block to share an as yet unbuilt railway running hundreds of miles through the harsh Guinean outback and avoiding destroying the habitat of a community of endangered chimpanzees.
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It may not be quite as romantic, but the purchase of the Bluff PCI coal mine for $5m in cash or scrip and a royalty may be just as opportunistic.
Record prices of met coal have brought the Bluff mine in Queensland, 174km from Rockhampton, in from the cold.
When previous owner Carabella Resources went under in November 2020, pulverised coal for injection was worth just US$72/t, prompting the mine to shut a month later.
Driven by shortages in China and elsewhere, prices are on a miracle run post-pandemic and are almost four times higher now, fetching US$276/t last Friday.
Bowen says the project could supply 1-1.2Mtpa for 4-6 years at an initial capex of just $6-9 million and an FOB cost of $120-136/t before royalties.
Agreements for washing and loading the coal for export through the port of Gladstone are already in place, with Bowen expecting to begin mining operations early next year.
“Bluff is a rare opportunity to acquire a near production asset which can be recommissioned without significant capital expenditure,” Bowen executive chairman Nick Jorss said.
“The acquisition of the Bluff PCI mine accelerates our goal of becoming the Bowen Basin’s next independent producer of high-quality metallurgical coal to supply the steel industry worldwide.
“Our experienced team is preparing to restart the mine as soon as possible to maximise economic and social benefits afforded by the current high coal price environment.”