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Mining
The materials sector tanked, falling almost 1.5% today as iron ore futures crumbled under an avalanche of meddling by the Chinese Government.
We’re talking down prices again, with a big ramp up of domestic iron ore production in China pledged by the National Development and Reform Commission.
The NDRC told news outlets in the steelmaking heartland this week it planned to closely monitor iron ore market dynamics and limit “irrational price increases”.
It also wants Chinese iron ore producers, who largely produce magnetite concentrate from high cost underground operations, to ramp up to 370Mtpa by 2025.
This year they expect to deliver 290Mt, Reuters said. The highest level in eight years, that would be a big effort given last year’s output was not even close to that number.
It is worth noting higher iron ore prices, until recently up 50% since hitting a bottom of under US$80/t in October last year, were not wholly irrational.
China’s economy is reopening, and its steel blast furnaces are running at capacity utilisation levels upwards of 90%.
But the rumblings have had a big impact on futures, with Singapore prices cratering by 4.91% today to US$109.70/t. Dalian futures for September dropped 4.1% as well.
Fortescue (ASX:FMG), BHP (ASX:BHP) and Rio Tinto (ASX:RIO) all fell more than 2%, giving the materials sector little hope even as battery metals stocks like Pilbara Minerals (ASX:PLS) and Lynas Rare Earths (ASX:LYC) fared well.
In coal Whitehaven (ASX:WHC) shares surged after it announced the $150m construction this year of a small scale start up of the Vickery mine, which will add high quality thermal coal with a grade in excess of 6400kcal into its production mix.
Rare earths prices have fallen into the US$60s (NdPr per kg) in China, prompting fears the heat has come out of the rare earths market, which entered the year with a head of steam.
China’s economy has seen better days and production quotas are ramping up, as leading Australian producer Lynas noted in its quarterly report today.
Lynas, the leading rare earths producer outside China, says downstream demand for its products, used notably in magnets for motors in electric vehicles and in wind turbines, remains strong despite falling prices.
Boss Amanda Lacaze told analysts today the company was in a strong position with over $1 billion worth of capital projects going on to expand its rare earths business, where the company wants to ramp up an annual production rate of 12,000tpa of NdPr oxide based off its world class Mt Weld hard rock mine in WA.
But she said the company is keeping a watching brief on opportunities to expand into other styles of rare earths, including ionic clay rare earths.
“Do we look at alternate resources? Certainly ionic clay deposits with their preference for heavies (heavy rare earths) is of interest, rare earths that are not from hard rock deposits are interesting because anything where the mining costs have already been sunk is of interest,” she told analysts in response to questions on a conference call today.
“In Malaysia, for example, that might include things like some monazite rich tin tailings or as you know with Iluka, the mineral sands tailings.
“The Swedes are looking at rare earths out of some of the iron ore tailings from their large iron ore company and of course, that’s what Northern Rare Earths in China primarily (use as) their feedstock. So there are upstream opportunities.”
Then there are downstream possibilities, with Lynas reviewing whether it can head further into the use of lanthanum and cerium as catalysts in green and blue hydrogen production as well as magnet production.
“These are serious opportunities and then do we want to have a greater position in the magnet value chain, it’s always a watching brief,” Lacaze said.
Also on the reporting season calendar today iron ore junior Fenix (ASX:FEX) and Mount Gibson Iron (ASX:MGX) both enjoyed the rebound in iron ore prices in the March quarter, delivering solid cashflows.
Fenix generated $20m in free cash, boosting its bank balance to $69m after producing 350,923wmt at C1 costs of $84/t, boasting an operating margin of $71/dmt.
The junior, which sells around half its product in the form of premium priced lump iron ore, increased its margin by 85% as prices for iron ore from its Iron Ridge mine near Geraldton lifted from US$101/dmt in the December quarter to US$127/dmt in March.
Its costs lifted on a US dollar basis from US$51/wmt to US$57/wmt, but that was more than cancelled out by stronger prices and lower shipping costs (US$17.4/dmt v US$21.7/dmt in December).
Mt Gibson meanwhile generated $28m in cashflow to end the quarter with cash and investments of $83m after selling 0.66Mt of 65.3% Fe iron ore from Koolan Island, Australia’s highest grade hematite operation.
Pulling prices of US$121/dmt FOB, Mt Gibson delivered its product at a cash operating costs of $84/wmt (Australian).
That is expected to reduce in the June quarter to hit MGX’s annual target of $75/wmt as operations ramp up, with Mt Gibson needing to ship over 1.1Mt through the final three months of the year to hit its guidance of 2.9Mt.
“Mount Gibson achieved a substantial operational improvement at Koolan Island in the March quarter despite interruptions to the operation’s transport logistics activities from record flooding on the Kimberley mainland,” CEO Peter Kerr said.
“Mine production continued strongly with 1.2 Mwmt of high grade ex-pit ore stockpiles ready for crushing at the end of the quarter.
“Interim crushing arrangements supported an average shipping rate of three shipments per month in the quarter, including five cargoes in March, yielding significantly improved operating cashflows and assisting in doubling the quarter-end cash and investment reserves.
“Together with continued strong pricing and demand for Koolan Island’s high grade 65% Fe products, Mount Gibson is targeting rapidly increased shipments and operating cashflows in the immediate term, providing a robust platform for the Company to create value and pursue growth opportunities.”
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