Monsters of Rock: Goldman completes flip on iron ore, says shortfall will remain for 2023
Goldman Sachs unloaded this bomb on a then falling iron ore market in August, predicting a continuing fall to US$90/t from July to December in a bear move predicated on a flop in Chinese steel output.
That would have left a surplus of some 68Mt, its strategists mused at the time.
And now for the massive about face, given iron ore prices have climbed from a touch over US$100/t for benchmark 62% Fe fines back then to US$127.60/t in Singapore today.
GS now thinks there’s a clear deficit, according to a new report related by CNBC.
The culprit is underperforming supply out of both Australia and Brazil – the latter the larger component with Vale struggling with a failure in the conveyor system at its high grade S11D deposit and lower output in its southern system.
That has seen Goldman lift its iron ore price forecasts for 2023 from US$101/t to US$117/t, with its 2024 expectations up 22% from US$90/t to US$110/t.
Meanwhile iron ore inventories in China domestically are low, spurring demand for seaborne imports and leaving price risk ‘skewed to the upside’.
It’s quite something given how troubled China’s property sector, the traditional growth engine for iron ore prices, has been in 2023.
That outlook appears to be improving from a poor base.
“Iron ore futures gained last week amid signs of improvement in the Chinese property sector,” ANZ Research’s Felix Ryan said.
“Sixteen major cities removed maximum price limits on land auctions, which could help investment. Any improvement would require a substantial restocking of raw materials, with weak margins pushing steel mills to work down the inventory.”
The major iron ore producers were much of a muchness today, with BHP (ASX:BHP) slightly in the green and Fortescue (ASX:FMG) and Rio Tinto (ASX:RIO) copping minor losses. The materials sector sagged 0.16% at 3.30pm AEDT, with battery and base metals exposed Allkem (ASX:AKE), South32 (ASX:S32) and Pilbara Minerals (ASX:PLS) all among the bigger large cap losers.
That came as a slight pause in the frantic M&A and corporate manoeuvres that have the ASX all hot and bothered of late in the lithium sector left one of the early targets of this year’s shenanigans a window to raise some cash for the kitty.
It was all quiet on the Azure Minerals (ASX:AZS) front today, while we still await the independent expert’s report on Alita Resources’ Bald Hill mine and how much Mineral Resources (ASX:MIN) will be likely to pay there (an aside – Chris Ellison’s company invites shareholders to its AGM on Thursday).
Early doors Gina Rinehart and Ellison took tentative steps into the land grab by taking up stakes in Delta Lithium (ASX:DLI), owner of the ~15Mt Mt Ida deposit near Menzies in WA’s Goldfields and the frontier Yinnetharra project in WA’s untapped Gascoyne region along its Mid-West coast.
Major shareholder (17.44%) MinRes and Rinehart’s Hancock (4.6%) threw what is for them chump change, a collective $15.4m of a 2-for-7 entitlement issue that will garner Delta $70.2m to ramp up drilling across Mt Ida and Yinnetharra.
At 46c, the issue will come at an 11.5% discount to Delta’s last traded price of 52c but more than half its July record of 96c.
Delta, of course, now has Ellison as its non-executive chair and MinRes’ lithium chief Josh Thurlow as a non-executive director, with former exec chair David Flanagan leaving back in September.
What the overall plan is here remains to be seen, though MinRes controls the region’s biggest operating lithium asset in its Mt Marion JV with China’s Ganfeng and is set to imminently take control also of the operating Bald Hill mine from the administrators of Alita Resources.
We chatted to James Croser, the interim MD, last week about Delta’s plans for its Mt Ida and Yinnetharra project.
Among the big takeaways is that falling spodumene prices have seen plans to produce a low grade direct shipped ore product go out the window. The company could, theoretically, have been exporting this year having received approvals to mine the first stage of the lithium and gold resource at Mt Ida.
The strategy outlined in an investor presentation to complement the equity raising bears a little more in the way of patience.
A scoping study on a concentrate project is due early next year with a feasibility study and FID laid down for the fourth quarter of 2024.
Meanwhile, at Yinnetharra a maiden resource is due for the Malinda project this quarter.
But the big focus will be to ratchet up the intensity of drilling across it and regional targets like the Jamesons prospect, where a heritage survey is ongoing, with Delta increasing the number of rigs onsite from 3 to 8.
That underpins a target of some 250,000-300,000m of drilling and over 2000 holes, with a scoping study and mining licence application also forecast for Malinda in the foreseeable future.