Ground Breakers: Iron ore miners throw back to halcyon days of May as Woodside mulls Scarborough selldown
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Is China’s central bank considering ripping the bandaid off and going hell for leather on economic growth yet again?
Maybe not, but reports out of the Middle Kingdom certainly suggest the economic slowdown over the past few months has got the Communist Party worried.
The People’s Bank of China dropped a number of bearish policy stances from its most recent quarterly report, suggesting credit lines are poised to reopen and stimulus measures could be on the cards.
Good news for iron ore companies, who saw prices rise back above US$95/t overnight and Dalian’s January futures contract march 5% higher in morning trade.
Fortescue Metals Group (ASX:FMG) raced to 2 month highs with a 7.59% gain to climb above $17 – Morningstar chucked a bearish $10 price target on the stock just one week ago.
It is the sort of enthusiasm for the big iron ore miners not seen since the halcyon days of May (when prices hit records of US$237/t) or August (when those record prices turned into record dividends).
Coal, lithium and base metals stocks were also higher as the materials index rose more than 2% on the ASX, but gold miners were hammered as Joe Biden announced a second term for Fed Reserve chair Jerome Powell.
Powell is seen as more hawkish than the other main option Lael Brainard, paving the way for future interest rate rises.
US$12 billion, around $16-odd billion Australian, is a big undertaking for Perth’s Woodside, even if it is getting bigger after formalising its $40 billion merger with BHP’s petroleum business.
Even post-merger — and post the 49% sale of the new Pluto 2 LNG train that will process Scarborough gas to Global Infrastructure Partners — that US$12 billion figure is absolutely huge.
In fact, this is the biggest resources project in Australia to be green-lit in a decade.
It makes it inevitable that Woodside will pursue a selldown of the mega-project, looking to divest around half of what would be a massive undertaking if the Australian corporate giant had to go it alone.
That could take place even before the completion of Woodside’s merger with BHP Petroleum in mid-2022.
Analysts grilled Woodside boss Meg O’Neill on a conference call this morning about why it has pushed the button on Scarborough without a partner in tow.
She said the process to find one is ongoing, bristling against comments from analysts about the LNG industry’s poor record of delivery on mega projects like Scarborough and that the relative scale of Scarborough to Woodside made the company going it alone on an FID a risky proposition.
“You know, we received feedback from a number of external parties that the maturity for a final investment decision actually is well advanced versus where many other projects would take the decision,” O’Neill said.
“So we feel like the risk is very well managed. We do have the Scarborough sell down process underway but as we’ve said before, we want to make sure that we do two things, we want a partner that will be a good partner for us for the long term.”
“And we want to make sure that when we sell down Scarborough, it’s in a manner that is value accretive for Woodside shareholders, so we will be patient.”
“But one of the things that I think is quite positive is now that we’ve taken FID we’ve got a very clear message to the market that this is a derisked project.”