Bulk Buys: Where you could have made money in iron ore and coal in 2023
In our final regular Bulk Buys for 2023, we look at which iron ore and coal stocks have stood out from the pack in the Year of the Rabbit.
Welcome to the final Bulk Buys of 2023, the place where we place the microscope on commodities whose best before date is only a recommendation.
Iron ore and coal may be passe and anti-social but they continue to shock forecasters who see demand falling off a cliff as the world grows increasingly concerned it could be industrialising into oblivion.
The reality is for the world’s energy and construction needs, these two markets continue to dwarf those of markets like nickel, copper and lithium.
So far this year a surprising run in Chinese steel production, which looks like it could rise ever so slightly for the first time since 2020’s peak, has sent 62% Fe iron ore prices up 21% to US$132.10/t.
Thermal coal has had a tougher go of things. After hitting records in excess of US$450/t in September 2022, the suddenly resurgent energy fuel had its charge halted by a mild northern winter and improvement on last year’s shocking run of supply challenges.
6000kcal high CV coal out of the Port of Newcastle dropped some 65% to US$141.25/t as of yesterday’s front month futures price.
Premium hard coking coal meanwhile has traded roughly sideways in 2023, seriously outperforming thermal coal and remaining at elevated levels after China decided to resume coal imports from Australia as its steel output remained in excess of 1Bt in 2023.
That price was quoted at US$325/t, having retrieved the premium it typically holds over thermal after an unusual 243-day stint at a discount.
You’d think iron ore plays would be on a high.
Not so. Of the 42 ASX companies with iron ore assets tracked by Stockhead, 15 were in the black, with one — Simandou nearology play Arrow Minerals (ASX:AMD) — trading sideways over the past year.
That leaves 26 in the red. Among them are high grade iron ore miners who have seen costs lift and premiums collapse due to weak steel margins in China, or magnetite hopefuls who will need to find large amounts of capital to enter production.
Others shifted into other commodities after suffering the volatility of iron ore in 2021, when prices crested above US$237/t before sagging to US$87/t in the space of six months.
Some of the biggest gains could be found among the producers. We’ll get to one of our big winners in a moment, but by saying Rio Tinto (ASX:RIO) and BHP (ASX:BHP) climbed 17% and 9% across the year respectively you’ll know who we’re talking about.
What do they have going for them? Well, their costs are so low they make literally billions at prices like these (and much lower given how many times you can divide 20 into 130).
Scroll or swipe to reveal table. Click headings to sort.
Here are our top three, vetted for companies who aren’t really drawing their gains from the iron ore thematic.
That set the tone for an invidious couple of years as the company slid from its listing price of 20c to 2c. So this hasn’t been a great one to hold for its duration.
And at a market cap of under $7 million, it will likely take a serious development to bound ahead further.
Its narrative at the time of listing was wholly in step with a market in the throes of an iron ore boom, when it felt like all time high prices for some reason would continue forever.
PLG wanted to drill out an extension on Cockatoo Island to one of the few historic mines to deliver high grade 65% Fe DSO iron ore.
A maiden inferred resource at the Magazine deposit earlier this year was far more modest — 24.5Mt grading 34.3% Fe — something that would require upgrading.
An exploration target was set at the same time (March) of 0.38Mt to 6.6Mt at 66% Fe for the Seawall haematite and 0.1Mt to 1.9Mt grading 55-65% Fe at the High-Wall haematite in the more promising Switch Pit.
There’s been little to report since outside of some sell downs by major shareholder Cockatoo Iron NL and that the company is “reviewing new opportunities with the objective of strengthening its existing asset base”.
We wouldn’t hold our breath on seeing production anytime soon, but maybe something outside iron ore could be on the horizon.
Tightly held Red Hawk has recovered from years in the doldrums wedded to a seemingly imaginary state-building WA infrastructure project.
Once known as Flinders Mines and majority owned by New Zealand’s Todd Corporation, Red Hawk spent years in a plan to export tens of millions of tonnes of iron ore a year annually through a new port and rail project known as Balla Balla.
The dream made little sense given the cost of the construction and the low grade of its resource.
Instead, the rebadged company newly led by former Vimy Resources boss Stephen Michael, is planning to send a more modest amount in the range of 3Mtpa through existing ports in the iron ore rich Pilbara, using reserves grading upwards of 60% Fe and all sitting above the water table.
A scoping study suggested a small 3Mtpa operation could deliver ore at a C1 cost of US$50/wmt for 20.1 years at a capex bill of just $150m.
A pre-feasibility study in the works will shine a stronger light on whether the plan to enter production in 2025 at the renamed Blacksmith project will be achievable.
$86 billion capped Fortescue has now sanctioned its first green energy projects and, having hit a record share price yesterday, its billionaire founder and hydrogen messiah Andrew Forrest may certainly see that as vindication for his dramatic shift in strategy.
The first approved projects — an 80MW electrolyser and liquefaction facility in Arizona costing US$550m and producing 11,000t of green hydrogen per annum from 2026 and a US$150m 8000tpa project in Gladstone, slated to produce from 2025 are the first cabs off the rank.
At the miner’s AGM last month Fortescue chair Forrest compared doubts about its green energy division to naysayers who thought his foray into iron ore in the early 2000s was foolish (who were of course proven wrong).
But iron ore remains the lifeblood of Fortescue and even more so for the so-called ‘third force’ because, unlike BHP and Rio, its earnings are entirely centred on the bulk commodity. That makes it a purer play on the iron ore price, even if its run to record highs has also coincided with the establishment of the green arm.
(Correlation is not causation, and strong dividend payments don’t hurt either.)
The artist formerly known as Fortescue Metals Group produced a record 192Mt of hematite iron ore in FY23 and the kind of iron ore it produces — low grade fines — is in high demand at reduced discounts because Chinese steel mills are trying to pinch pennies.
Its Iron Bridge magnetite development has bigger questions marks over it. Having come in late and over budget at US$4 billion on delivery, first year production was chopped from 7Mtpa to 5Mtpa. Producing a 67% Fe plus magnetite concentrate that should give FMG access to the green steel market, Iron Bridge is slated to hit its 22Mtpa capacity within two years.
Investing in coal stocks has predictably been even tougher going in 2023.
So who are the biggest winners? We’ll ignore GreenX (ASX:GRX), which has pivoted to gold and copper and is a coal stock in the sense it is chasing some pretty hefty compensation from the Polish Government for a rejected mine.
Scroll or swipe to reveal table. Click headings to sort.
Now for the real stuff:
Stanmore has now owned the Poitrel and South Walker Creek mines — once known as the BHP-Mitsui Coal JV — for a year.
It was good business. Backed by Indonesia’s Widjaja dynasty, Stanmore’s surprise M&A win kicked off a record earnings year which included entry into the ASX 300.
SMR delivered a US$340.3m profit in the first half of the calendar year, generating almost US$1.5b in revenue, up 46% and 36% respectively.
That saw Stanmore pay out a US5.82c per share dividend to investors — fully franked — in November. However, it disappointed at the same time with guidance that showed it would stagnate in production in 2024 at 12.3-13Mt, with costs rising from US$87-93/t to US$97-102/t.
Interest in this $53 million Mongolian met coal hopeful has been supercharged in the past month with little market moving news to back it.
It owns the Ovoot coal project where it’s working through the approvals process and feasibility studies to move towards production by the end of 2025.
Chairman Michael Avery told shareholders at its AGM last month the company was positioned to capitalise on continued demand for met coal.
“On a world stage, our view is that there is currently minimal capital being invested in the development or expansion of coking coal projects, where green policies are not differentiating between coking and thermal coals,” he said.
“At the same time, the demand for coking coal continues to increase and remains an
irreplaceable input into commercially viable processes of making steel, which is an essential material required to achieve many of the United Nations Sustainable Development Goals.
“Mongolia is a young and vibrant democratic country, with a relatively young but proud mining heritage. The Mongolian Government has been proactive in recent years to encourage and support both foreign and domestic investment in mining.
“In such context, as a veteran of the coal industry, the prospect of developing the Ovoot Project excites me tremendously. In my view there are few, if any greenfield coking coal deposits equal or better in terms of size, quality, or proximity to market.”
Aspire is hoping to export what’s known as a ‘fat’ coking coal from Mongolia to the Chinese steel market.
Kiwi coal miner has enjoyed strong pricing for met coal, maintaining guidance in its most recent quarterly report for EBITDA of $95-105m this financial year.
It also has interests in British Columbia in Canada, where Bathurst excavated the Tenas coking coal project from the husk of collapsed North American miner Allegiance Coal in September.
It intends to produce 750,000tpa of saleable steelmaking coal each year from FY26 for a mine life of 22 years after the US$10.3 million acquisition, which could increase Bathurst’s overall production capacity to 3.8Mtpa by 2029.
Bathurst expects to export 1.2Mt of hard coking coal as well as 751,000t for the New Zealand domestic market in FY24, resulting in total equity sales of 1.342Mt.