Ground Breakers: Iron ore rises above US$120/t with outlook brighter for commodities
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Investors are yet to play their cards on the majors despite a big move in iron ore markets late last week, as 5% gains in Dalian Iron Ore Futures were followed by similar moves in the spot price.
At US$123.38/t, iron ore prices are back into super-high margin territory for all of the big and mid-tier iron ore miners .
The recalibration follows their dive to US$93/t towards the end of September, which sent shudders through the junior end of the market.
Analysts have largely put the price moves down to restocking demand after a major public holiday in China, but after steel production cuts mandated by the Chinese Government took hold in recent months, there could be more fundamental support for iron ore as output in areas that exceeded production cut quotas beats expectations.
“Iron ore prices rose on restocking demand after the National Day holidays (October 1‑7) in China,” CBA analyst Vivek Dhar said.
“Steel output is reportedly set to increase in October in some parts of China, like Tangshan, Jiangsu, Zhejiang and Anhui, after these regions exceeded steel production cuts in September.
“The impacted mills may see November output either match or exceed October levels.”
BHP (ASX:BHP) and Rio Tinto (ASX:RIO) were relatively flat while small iron ore miners and explorers and Mineral Resources (ASX:MIN) were in positive territory, with Chris Ellison’s iron ore, lithium and mining services play up 1.75%.
FMG (ASX:FMG) was also up around 1% after Andrew Forrest’s highly publicised announcement that Fortescue Future Industries would begin electrolyser production in 2023 at a new green energy and green hydrogen manufacturing hub at Gladstone in Queensland.
The whole investment could cost up to US$650 million, with an “initial electrolyser investment” of US$83 million (whatever that means exactly).
The six stage project will have an initial capacity of 2GW per annum, with construction to begin in February next year, making it Australia’s first multi-GW scale electrolyser factory.
Coal stocks were also higher after already high prices for both thermal and coking coal rebounded on Friday, with Yancoal (ASX:YAL) and Whitehaven (ASX:WHC) among the best performing mid-cap miners this morning.
It is not too surprising Capricorn Metals has made a positive start at its Karlawinda gold mine in the Pilbara.
The newly minted gold producer is led by none other than Mark Clark, whose expertise led Equigold into its 2008 merger with Lihir Gold and Regis Resources (ASX:RRL) into a position as one of Australia’s most consistent mid-cap gold miners.
He is taking a similar path at $850 million-capped Capricorn, where the low-grade bulk tonnage Karlawinda reserve bears similarities to deposits at Regis’ Duketon gold project.
According to Capricorn’s quarterly report today, Karlawinda produced 24,329oz of the yellow metal in its first full quarter of operations.
The mine is now operating at steady state rates, and was expected to be producing at its 110,000-125,000ozpa long term production rate from the start of this month.
Capricorn is moving towards commercial production, paying off the first $5 million of its bank debt as well as $12.8m of project development costs during the September quarter whilst generating $27.6m in cashflow during commissioning at the new gold mine.
The company will begin reporting costs from its December quarter report, having sold 21,921oz at an average price of $2362/oz in the September Quarter, with cash and gold on hand of $14.7m and $85m of debt still outstanding.
Capricorn also announced the acquisition of the 2.1Moz Mt Gibson gold project in July, which promises to be a second development opportunity for the miner, which has bucked the negative trend around most gold stocks to rise by around 25% year to date.
Spending on exploration drilling in Australia and overseas has skyrocketed in recent years as commodity markets have turned around and moved into broadly positive territory.
Perth drilling company DDH1 was a beneficiary of those blue skies, listing earlier this year in a heavily supported IPO.
While DDH1 sunk on debut, it is now up around 30% since its March listing and has already pressed the button on expansions to catch the good vibes going around the exploration sector.
With more explorers well funded to pursue drilling campaigns than at any time in the past decade or more, DDH1 is set to receive eight new rigs in the 2022 financial year and today announced it had signed contracts for a further three surface rigs in 2022.
They are all a nod to the automated future of the mining industry, with all three equipped with modern hands free rod handling technology.
“We continue to see strong market demand from our customers across Australia for DDH1’s industry leading drilling services, particularly across gold, iron ore and – increasingly – battery minerals,” DDH1 CEO Sy van Dyk said.
“These three new rigs, which will be delivered mid calendar year 2022, are part of our organic growth plan for FY23 and build on the significant expansion of the DDH1 fleet that we have already announced.”
“Importantly, these three new rigs further modernise what is already the most modern surface drilling fleet in Australia by adding safety enhancing automation such as hands-free rod handling.”