Ground Breakers: Iron ore smashed, South32 hit by guidance downgrade, BlueScope shows upside
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The materials sector was down 1.65% this morning as iron ore prices tripped up in China, with negative margins for steel makers and falling demand sending prices 8.3% lower on Friday to US$105.85/t.
The lowest level in 2023 so far, it has brought the early year post-Covid mini-boom to a crashing halt, sending major producers who make up a sizeable portion of the ASX resources sector lower this morning.
“Iron ore slumped amid lukewarm demand in China. Despite the construction season underway, steel prices have continued to fall amid weak demand and rising inventories,” ANZ’s Adelaide Timbrell said in a note.
“More than 40% of steel furnaces in Tangshan have gone into maintenance this week, reducing demand for iron ore.”
Taking a big wallop was Fortescue Metals Group (ASX:FMG), down more than 3.5% after releasing its quarterly results on a particularly dire day for the sector.
That was no match for the calamity befalling fellow ASX 20 miner South32 (ASX:S32).
Falls in price for the key commodities in the $18 billion capped miner’s portfolio didn’t help.
Weak US and Chinese economic data sent copper down 1% to US$8795/t with nickel sliding 2.3% to US$24,477/t, zinc falling 1.8% to US$2719/t and aluminium sliding 1$ to U$2397/t.
South32 was off more than 8% at 11.20am AEST. Yikes.
The news that drove that Homer Simpson style cliff fall included production guidance downgrades at a string of sites affected largely by weather.
Two Australian operations — the Cannington silver, lead and zinc mine in Queensland and the Appin coal mine in New South Wales — saw respective falls in guidance of 6% and 7% for FY23.
Guidance is also down 7% at the Cerro Matoso mine and 8% at Mozal Aluminium in Mozambique.
Heavy flooding at Cannington saw silver production fall 19% quarter on quarter to 2.479Moz in the March quarter, with lead output down 24% to 21,000t and zinc production down 23% to 12,600t.
Met coal output dropped 16% to 1.24Mt, with manganese ore production also down 15% to 1.261Mt (though still up 6% on a YTD basis to 4.198Mt).
Nickel production at Cerro fell 6% QoQ to 10,200t, while S32’s 45% share of copper output at Sierra Gorda fell 18% QoQ to 15,500t and its alumina production slid 9% to 1.239Mt. Aluminium output was down slightly to 279,000t, but is up 15% YTD at 847,000t.
Overall, S32 boss Graham Kerr says copper equivalent production has increased 7% this financial year.
On the project front an extension at its GEMCO manganese operation has also been approved, with just US$44m to be spent on the Eastern Leases South life extension project to take its operating life out to FY28.
“Several operations faced challenging conditions during the quarter, with production guidance revised down as a result,” Kerr said.
“At Mozal Aluminium, we reduced output as the team continued to work through their recovery plan following the devastating loss of two of our colleagues in November, with efforts hampered by severe flooding in the local area.
“We also temporarily suspended mining activity at Cannington during the quarter to enable the safe return to operations following heavy rainfall.
“Our strong financial position enabled us to return US$31 million to shareholders via our on-market share buy-back in the quarter, with a further US$128 million still to be returned. Separately, we paid a fully-franked interim dividend of US$223 million following the end of the period.
“We remain well positioned to capitalise on improved market conditions, with higher production volumes expected to finish the 2023 financial year and Operating unit cost and capital expenditure guidance held largely unchanged.
“We continue to reshape our portfolio towards commodities critical to a low-carbon future, progressing construction and development studies at Hermosa and adding the prospective Chita Valley copper project to our portfolio of greenfield options.”
Gruyere has proven a tasty cheese for Gold Road Resources (ASX:GOR) and its partner Gold Fields, producing over 1Moz since opening in 2019.
And its March quarter was one of its better slices, delivering 82,604oz at an all in sustaining cost of $1399/oz, compared to 74,201oz at $1622/oz in the three months to December 31.
Higher process plant availability and throughput was behind the improvement, with higher grades across the year expected to help the JV ramp up to guidance of 340,000-370,000oz at AISC of $1540-1660/oz.
The project is expected to produce in excess of 350,000ozpa to 2032, with feasibility studies commencing for an extension known as the Golden Highway, due to begin mining in 2026.
With production now unhedged, Gold Road saw operating cash flow from Gruyere rise from $47.3m to $72.1m in March, with record free cash flow of $44.2m (December: $16.5m) before $4.6m in dividend payments and $8.1m in divestments.
GOR finished the quarter with $127.9m in the bank, up from $80.8m in December, with listed investments of $480.5m including its intriguing near 20% stake in Hemi gold project owner De Grey Mining (ASX:DEG).
Meanwhile, BlueScope Steel (ASX:BSL) outperformed the broader materials sector after announcing a massive lift in expected earnings for H2 FY23 from $480-550m to $700-770m.
Th main driver is its North Star mill in the US, where the steel producer says better hot rolled coil prices and spreads will see EBIT 50% higher than the December half.
Its North American coated products and Australian Steel Products divisions have also seen stronger than expected sales prices.
“The improved outlook for 2H FY2023 is pleasing and a credit to the ongoing focus and dedication of our people and the loyalty of our customers,” CEO Mark Vassella said.
“Whilst we have been able to benefit from improved prices and spreads, particularly in the US, the improved outlook also demonstrates the strength and resilience of operating a diverse portfolio of high-quality assets.”