Ground Breakers: Iron ore miners ‘cautiously optimistic on China’, Regis tanks on guidance
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While the personal travails of its boss Andrew Forrest and green energy business have taken the lion’s share of the headlines in recent times Fortescue (ASX:FMG) remains a major and, incrementally, growing player in iron ore.
And despite it, Rio Tinto (ASX:RIO) and BHP (ASX:BHP) all revealing figures in recent weeks that suggest supply across the market is rising, Fortescue Metals CEO Fiona Hick has given a strong indication the company continues to see strong demand from China.
Fortescue produced almost 49Mt of iron ore in the June quarter for a full year record of 192Mt, which came after Rio announced it expected to hit the upper half of its guidance this year and BHP hit its own record, with plans to increase output by as much as 9Mt to 294Mt in FY24.
Twiggy’s iron ore producer has set its sights on delivering 192-197Mt in FY24 including 7Mt from the new Iron Bridge magnetite mine, alongside some output from its study phase Belinga mine in Gabon, where a 50,000t first shipment from Libreville is due later this year.
All eyes have been on China this week after a Politburo meeting that led to outsized gains from miners hopeful it would reinvigorate its struggling property sector, traditionally a major source of steel demand.
Stimulus measures have yet to be confirmed, prompting timidity in base metals and iron ore prices overnight.
But after Rio Tinto CEO Jakob Stausholm delivered a cautiously optimistic view on China yesterday, Hick followed suit when talking to analysts and media this morning.
“You would have seen the same reports that we’ve seen out of China over the last month, and particularly over the last week. What our team are seeing being both here in Australia as well as in country, we’re seeing low inventory levels, there’s been a drawdown of iron ore stock,” she said.
“And so with that unsold inventory levels in Chinese ports remaining low we’re seeing solid demand.
“So we’ve actually achieved very strong sales in the quarter, demand continues to be strong, given quality and consistent products. So, certainly, that’s what we’re hearing, as I said both in Australia and from the team in country, more cautiously optimistic would be the summary.”
FMG’s iron ore realisations have remained solid, registering 86% through 2023. Its lower grade ore tends to fetch a discount to benchmark prices, but those are generally narrower in conditions like we’re seeing currently, where low steel mill margins generate demand for sub-62% fines products.
But it is like many iron ore miners making a flight to quality. BHP is ramping up its South Flank mine that has made it the largest producer of lump iron ore in the world, while Rio was as gung ho as ever on the prospect of developing the large 65% Fe Simandou mine in Guinea on its financial results briefings this week.
FMG says its Iron Bridge mine, which will expand its offering and partly displace lower grade hematite shipments from the Pilbara, will hit a 22Mtpa run rate within 24 months.
Meanwhile, its Energy CEO Mark Hutchinson also remains bullish about the company’s prospect of reaching FID on five green energy projects this year.
“We’ve kind of talked about the various countries before, in United States we mentioned during the quarter that we’ve bought into a project which is fairly advanced and that’s quite exciting, because it’s going to supply hydrogen to the mobility sector,” he said.
“So I would imagine that would be one of our first ones to (get) through the FID process, we’re working very hard on Gibson Island as well, that’s progressing well, and we hope to get that done by the end of the year.
“And then the rest will come from, as we mentioned, Norway, Kenya, Brazil, and those are progressing as expected the moment.
“I think just in context, no one’s really done this before ever and these are complex projects. We’re competing for capital. We want to make sure we have the right discipline around you know, making sure the projects are in the right shape and compete for capital and we make the right decisions.”
Fortescue is the headliner but a bevy of gold miners have been out in force today strutting their stuff or keeping it comfortably buried beneath the iron ore miner’s enormous shadow.
The biggest shocker came from Regis Resources (ASX:RRL), owner of the Duketon gold operations and 30% of AngloGold Ashanti’s Tropicana JV.
It delivered 458,400oz at an all in sustaining cost of $1805/oz in FY23, but its FY24 guidance has prompted a terrified selldown from investors who saw its range of 415,000-455,000oz at AISC of $1995-2315/oz fall well below the consensus of 485,000oz at $1670/oz.
Regis says it is targeting production of 500,000oz by FY27 contingent on the approval of McPhillamys and performance of Duketon and Tropicana.
Partly, it attributes the guidance decision to mine costs and the impact of inflation.
“In light of Regis’ continuing focus on producing profitable ounces, the Company undertook a detailed reassessment of its life of mine costs to reflect recent significant inflationary impacts on realised performance over the last 18 months,” the company noted.
“This resulted in some production ounces previously considered profitable to be excluded from forward plans at Duketon.”
Regis shares tumbled 10.67%, despite gold prices rising 0.4% to US$1972.36/oz.
It was a different story for fellow WA gold miner Ramelius Resources (ASX:RMS), which produced 68,752oz at $1648/oz at its Mt Magnet and Edna May operations in WA.
Ramelius produced 240,996oz at $1895/oz in FY23 and foresees solid production growth into 2023 of 250,000-275,000oz at $1550-1750/oz, aided by the addition of more ounces from its high grade Penny mine, which is trucking to Mt Magnet.
That enabled project outcomes for the June quarter at Mt Magnet of 45,380oz at just $1429/oz.
RMS has $272.1m in cash, including $75.1m picked up in its acquisition of Lake Roe gold project owner Breaker Resources. However, it may be facing some roadblocks on the acquisition front.
Despite securing the support of the Musgrave Minerals (ASX:MGV) board, Ramelius so far has acceptances of just 17.71% of MGV shares. The offer has been open for two weeks, with Musgrave’s board again this week reiterating its support on Wednesday for the $201m proposal which will see Ramelius offer up 1 share for every 4.21 shares held by MGV investors along with 4c a pop in cash.
Meanwhile, West African gold miner Resolute (ASX:RSG) copped a 4% hit to its share price after gold production from its Syama and Mako projects fell from 92,259oz in March to 84,372oz in the June quarter.
That resulted in a 2% increase in costs to US$1489/oz, delivering an AISC margin of a few hundred US bucks on sales of 84,907oz at US$1922/oz, generating US$17.3m in cash.
Despite the cold shoulder from the share market, CEO and MD Terry Holohan said RSG remained on track to hit its 2023 guidance.
“It has been another stable Quarter for Resolute across all three of its mines (Syama Oxide, Syama Sulphide and Mako) as we continue to track in line with our reporting guidance on production, cost, and capital. Importantly, we expect to end the year meeting all our guided targets,” he said.
“We ended the Quarter with 84,372oz of gold poured and an AISC of $1,489/oz which was in line with our expectations. Despite the reduction in gold production this Quarter, our AISC per ounce poured increased only 2% as our promised focus on sustainably reducing costs across the group started to pick up momentum.
“It is pleasing to review our key statistics of tonnes mined and processed, ore grades (despite the mining of a medium grade section of Mako ore) and net debt, from H1 2023 in comparison to the H1 2022 numbers. This demonstrates Resolute’s progress in such a short space of time, ensuring the Company is well placed to grow even further.”