Monsters of Rock: ERA's lawyers nab a win, iron ore doesn't

Energy Resources of Australia flies on court win
Iron ore rebounds after another dalliance with the space below US$100/t
Miners rise as China prints higher than expected CPI print

Today’s big resources winner has come from an unlikely source, with the eternal dreamers on the Energy Resources of Australia (ASX:ERA) register running the share price up 14% after a (at least temporary) court victory.

A decision to refuse the renewal of the Jabiluka uranium lease could have abused due process, a judge ruled, granting an injunction to stop the stripping of the licence from ERA by the NT Government on advice from Anthony Albanese’s Federal Labor Government.

The deposit is an undeveloped site which Rio Tinto (ASX:RIO), the 86% owner of the spent uranium producer, has committed to not develop unless that’s supported by the Mirarr traditional owners.

They retained a veto right under ERA’s ownership of the lease, but the NT Government wants to reserve the land to preserve it from future mining.

Vocal minority shareholders, who have long complained about Rio’s increasing control over ERA, want the company to work with the Mirarr to convince them to support the underground mine. Before the decision on the non-renewal, expected to roll over on Sunday, ERA had been in preliminary and now concluded talks with Boss Energy (ASX:BOE) over a $550m deal to acquire Jabiluka through the issue of shares to minority holders and conditional on the support of traditional owners, the NT Government and the Northern Land Council.

It comes with ERA effectively sitting on nothing more than a rehab liability, with a bill of at least $2.4bn required to be filled to return the closed Ranger uranium mine to the standard of the surrounding Kakadu National Park.

The next court date is August 19.

Iron naw

Iron ore miners rebounded as Singapore prices again bounced off the trampoline at US$100/t, rising 2.25% to US$101.70/t this afternoon.

It came after they peered below US$100/t, didn’t like what they saw and returned to the safety of the low US$100s.

What’s been behind this stagnancy?

“The recent weakness in iron ore prices is broadly consistent with a significant worsening of steel mill margins in China,” Commbank’s Vivek Dhar said.

“Steel mill margins are an important driver of iron ore prices given the competitiveness of China’s steelmakers to maximise profits and minimise losses.

“With steel mill margins now at levels that strongly discourage production, markets are justifiably worried that iron ore prices may be sustained below $US100/t in the near term.”

There’s a lot that could happen from here. Dhar noted weak steel margins coincided with a fall in prices from US$144/t to US$98/t between January 3 and April 4 this year, with prices largely rangebound since then.

Cost support has come for iron ore at between US$80-100/t.

“It’s also worth noting that the seaborne iron ore cost curve now has considerable cost support in the $US80‑100/t (62% Fe, CFR China) range ever since high‑cost supply replaced the supply curtailed following the Brumadinho dam collapse in January 2019,” Dhar said.

“For iron ore prices to sustainably fall below $US100/t, markets will need to believe that China’s steel demand will contract through H2 2024 and stimulus won’t be announced.”

Having hit that floor and come back again, it remains to be seen if there is a straw that can break traders’ backs.

The materials sector ended the trading day on a 1.8% gain. Chinese CPI rose more than expected in a release today, up from 0.2% YoY in June to 0.5% in July against a project lift of 0.3%.