Darwin-based NT Bullion is one of a host of miners from Australia to Canada who are restarting abandoned operations by the major producers of the steel ingredient.
Their bets made at the bottom of the mining cycle could prove lucrative. The price of iron ore jumped 65% last year to a nine-year high of $ 166 per tonne, thanks to continued strong demand in China and supply constraints in Brazil, the world’s second-largest producer.
“At current prices, that’s approaching a margin of $ 100 a tonne for us,” said Rodney Illingworth, managing director and co-founder of NT Bullion.
Analysts predict prices will remain above $ 100 per tonne in 2021, with the four largest producers – BHP, Rio Tinto, Vale and Fortescue – unable to significantly increase production. After that, they expect prices to fall, with Brazilian supply recovering faster than global steel production.
NT Bullion purchased the Frances Creek mine in 2020 from Perth-based Gold Valley Holdings, which acquired it from Noble for $ 1 in 2018. It is investing AU $ 15 million ($ 11.3 million) to modernize the mine. ‘equipment, process ore from existing stocks and begin mining. The first trains of iron ore left for Darwin port in December and are expected to ship in January under a marketing agreement with Anglo American.
A few hundred kilometers away, operations have also restarted at Roper Bar, a mine acquired in 2017 by Nathan River Resources, a subsidiary of the British Marine Group, which now has an annual production target of 1.5 to 2 million tonnes of iron ore per year. Nathan River has entered into a marketing agreement with Glencore.
“You certainly see a correlation between high iron ore prices and the expansion of production from miners outside of the Big Four,” said Paul McTaggart, commodities analyst at Citigroup. “The juniors will seek to restart the pending mines and bring back a few marginal tonnes to the maritime market.”
Citi Research shows that the supply of non-traditional iron ore (from countries other than Australia, Brazil and South America) to China has increased from 206 million tonnes in 2013 to 109 million tonnes in 2015, when average iron ore prices fell from $ 97 per tonne to $ 56 per tonne. This year, Citi predicts the non-traditional supply will rise above 200 million tonnes, with average prices reaching $ 120 per tonne.
But Mr McTaggart believes there is a limit to any further expansion of the supply of non-traditional iron ore unless a consortium backed by China and Anglo-Australian miner Rio Tinto hire more than 20. billion dollars to develop their respective share of the enormous Simandou deposit in Guinea.
“This is a complex project involving 650 km of railroad over difficult terrain that could deliver up to an additional 200 million tonnes per year,” he said, adding that it would take at least six years before production at Simandou can begin and a decade or more to reach full production.
Another beneficiary of the iron ore price spike is Champion Iron, a listed producer in Australia who bought the pending Bloom Lake mine in Canadian Quebec in 2016 for C $ 10.5 million ($ 8 million). . The former owner, Cliffs Natural Resources, spent $ 7 billion to acquire the mine in 2011 and build infrastructure over five years.
“Watch what happens when the herd mentality sets in and most analysts and investment bankers say iron ore prices go x and stay there forever,” said Michael O’Keeffe, founder and executive chairman of Champion. “I like to take countercyclical views.”
Mr. O’Keeffe, a trained metallurgist and former Managing Director of Glencore Australia, is known in the industry for the creation of Mozambique-centric Riversdale Resources, which Rio bought for $ 4 billion at the peak of the mining boom in 2011 before selling it for just $ 50 million in the commodities crash a few years later.
With financial support from Glencore, the Government of Quebec and the Chicago Wynnchurch Fund, Champion restarted mining in February 2018 and produced 7.9 million tonnes in its first year of operation. It plans a C $ 500 million expansion to double production to 15 million tonnes per year by mid-2022, which it says would reduce production costs by $ 40 to $ 35 per tonne, including shipping. .
Energy is the world’s essential business and Energy Source is its newsletter. Every Tuesday and Thursday, straight to your inbox, Energy Source brings you essential news, cutting-edge analysis and insider information. Register here.
Champion predicted long-term sustainable iron ore prices of around $ 85 per tonne in its feasibility study for the expansion project. Its high-quality output is above the benchmark price of iron ore.
“We’re getting $ 166 to $ 167 a tonne,” O’Keeffe said. “I mean, it just allows us to print money. But it will not always be there and our decisions are not based on today’s price. It’s more about how we see the market going. ”
He said Brazil would find it difficult to scale up production quickly in the short to medium term due to the pandemic and fallout from recent mining disasters, while Australia was running out of spare capacity for existing high-quality projects. Its longer-term goal was to expand production to “somewhere between 28 and 30 million tonnes per year high grade.”
For now, the stars are aligned for small producers to reap inordinate rewards from their investments. But they must act quickly.
High prices are now a strong incentive to develop new mines for many commodities, including iron ore, where the discipline of sourcing from major producers may not last forever. The demand for iron ore could also be threatened by a faster absorption of scrap in the Chinese steel industry.
“High iron ore prices over the past two years have resulted in increased project activity – we have identified over 340 million tonnes per year of growth projects, with an average incentive price of $ 51 per year. ton, up from a pipeline of 230 million in 2019, ”Morgan Stanley said in a recent report.
Yet small producers expect to remain profitable even when prices fall.
“We didn’t project that price and everything would be fine even if the prices dropped to $ 55 a tonne,” said Mr. Illingworth of NT Bullion. “But that’s definitely an added bonus.”