What do higher iron ore prices mean for aspiring producers?
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Special Report: Iron ore prices have been on an absolute tear this year, as significant supply shocks push the benchmark (62 per cent iron content) iron ore index up almost 40 per cent to $94.48 a tonne.
The largest of these supply shocks, the collapse of Vale’s Brumadinho mine tailings dam in Brazil, means a sharp drop in high grade South American iron ore exports going forward.
Australian producers stand to gain as prices rise “in a more supply-constrained iron ore market”, Department of Industry chief economist Mark Cully said late March.
The dam collapse and subsequent closure of several tailings dams could reduce global seaborne supply by 46 million tonnes in 2019, and by around 25 million tonnes each year thereafter out to 2024, says Mr Cully.
“This could support higher iron ore prices over the outlook period,” he says.
This is great news for established producers, but what about near term miners like Fenix Resources (ASX:FEX)?
Fenix recently boosted the total resource at its Iron Ridge project in Western Australia to 9.2 million tonnes at 64.1 per cent iron.
The goal is to produce a high-grade product approaching 65 per cent iron content from Iron Ridge; a product that buyers are prepared to pay a big premium for.
Fenix is now working to bring this open pit DSO project into production ASAP to take advantage of projected higher prices.
An advantage to building a small, high grade ~1Mtpa operation, is that it won’t take many years or a huge amount of capex to start production.
Fenix believes it may be able to apply a “capital-light development plan” to bring the project into production within a tight timeframe.
The company is well on its way with initial product offtake negotiations underway and the statutory permitting process already commenced in March. The company is expecting preliminary agreements on road ore haulage and port storage and handling services to be finalised in the next few months.
Fenix is also well advanced with metallurgical test work with results expected in late April.