Iron ore price recovery has CuFe’s JWD project in WA back up and running. Pic via Getty Images.
CuFe’s JWD iron ore mine back in the swing of things as iron ore market takes a turn for the better
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With iron ore prices back to healthy levels and steel demand recovering in Asia, CuFe is back in full force at its JWD iron ore project in WA, completing the ramp up of operations to full scale.
The iron ore junior moved swiftly to return the project to production with iron ore prices up over 60% since their lows of around US$80/t in October last year.
As promised when the mine was temporarily suspended last year, equipment was kept onsite to maintain operational readiness and ensure the company could respond to rising iron ore prices, with Singapore futures settling at US$129.62/t yesterday.
Those prices are well above long-term averages and supportive of the high grade iron ore CuFe Ltd. (ASX:CUF) will ship from the port of Geraldton.
A rethink of the operations, where the company plans to move from 60% to 100% ownership subject to shareholder approval, has also bolstered the asset.
Planned sales for 2023 will be fed from a smaller scale pit with a low strip ratio of just 1.2 to 1. That will enable CuFe to focus on maximising near term cash flow at lower costs.
“As the year progresses we have the option to cut back the pit to access further high grade ore if the iron ore pricing environment is supportive of doing so,” the company told investors in an ASX release today.
“Project economics have been further improved by changes to the processing circuit which have increased the saleable portion of fine product that is being generated.”
Prune your hedges
Hedges are back in vogue, and CuFe has resumed its practice of hedging to protect against volatility in the often volatile iron ore price.
170,000 dry metric tonnes has been hedged with a variety of maturities out to September 2023, covering around 35% of its intended sales to that point.
It wants to protect its exposure even more, aiming to cover around 70% of its six month production profile at a time of attractive iron ore prices.
Current hedges consist of 30,000dmt of swaps at an average price of US$127/t on a 62% Fe basis and 140,000dmt on zero cost collars, with weighted average floor and ceiling prices of US$116/t and US$135/t on a 62% Fe basis.
Around 85% of the intended sales are lump, a product which draws a premium on each unit sold because it can bypass the sintering process steel mills have to complete for fines before iron ore is processed into crude steel, which helps factories reduce their emissions.
That premium remains unhedged, giving CuFe exposure to the upside.
“It’s pleasing to see JWD back operating at full capacity. I would like to acknowledge the Cufe team and our key contracting partners for their assistance in achieving this,” CuFe executive director Mark Hancock said.
“While global markets are uncertain at present the iron ore market has been showing encouraging signs, with steel demand improving and iron ore inventory levels at Chinese mills very low on a days of use basis.
“Given this backdrop we have been building a hedge book, aiming to protect downside exposure at levels above our breakeven cost and maximise our exposure to upside participation if the market continues to improve.”
A meeting to approve the acquisition of the remaining 40% at JWD is expected to be held in May, following the release of a notice of meeting and independent expert’s report on the fairness and reasonableness of the proposed transaction.
CuFe plans to settle the deal with major shareholder Gold Valley Iron Ore by issuing 150 million shares and refunding its historical joint venture cash contributions, which came to $1.32m as of December 31 last year.
This article was developed in collaboration with CuFe (ASX:CUF), a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
