Falling iron ore prices and rising costs are putting Australia's remaining smaller iron ore mining firms under pressure, with GWR selling out and others relying on hedging to manage margins.
The Argus ICX 62pc Fe price has slipped below $100/dry metric tonne (dmt) and inflation is pushing costs up across the iron ore industry, particularly for smaller firms that rely on trucking coal to ports for export rather than by rail. This margin squeeze could see Australia's remaining small-scale mines close and will further delay other development plans, while GWR has opted to exit production and look for new opportunities.
Chinese born, Perth-based entrepreneur Yuzheng Xie's Gold Valley investment firm has agreed to pay GWR A$30mn ($20.7mn) plus royalties for the C4 mine in Western Australia (WA) and A$5mn for existing plant, stores and stocks. Gold Valley and Australian firm CuFe already have a joint venture that operates the 400,000 t/yr JWD mine next to C4. GWR plans to use the funds from the sale to examine options for the other 10 deposits close to C4 and to develop a magnesite project in Tasmania.
Australian firm Strike Resources' plans to ship iron ore through Port Hedland from its Paulsens East mine in WA's Pilbara this month will be an early test of how intense the margin squeeze has become for smaller producers. The project was found to be attractive at a 62pc Fe of $110/t cfr Qingdao or above in a feasibility study, although this was done before the current inflationary environment. Sliding realised prices and rising costs could see Paulsens shelved soon after it is started up.
Some small-scale producers, including CuFe and Fenix, have locked in prices using hedging that could see them through a short period of low prices. But it will not protect them against a prolonged period of lower prices like those prior to June 2020.
Fenix shipped 204,000 wet metric tonne (wmt) of ore during April-June to create net operating cash flow of A$15mn, down from A$33.1mn for January-March from 194,000wmt shipped. It received A$170/dmt during April-June, which it estimates is equivalent to A$215/dmt cfr China. It has locked in 50,000 t/month of sales at A$230.30/dmt cfr China until October, dropping to 35,000 t/month at A$180.65/dmt cfr China from October to June 2023. The firm's C1 cash costs were A$91.53/wmt fob WA for April-June.
Vulnerability
The Fenix example shows how vulnerable these smaller iron ore producers are in the current market of falling prices and rising costs, even if they are producing higher grade iron ore.
Lower grade, higher cost projects have largely disappeared from quarterly mining updates, with Australian mining firm Mount Gibson barely mentioning its 1.5mn t/yr low-grade Shine iron ore mine and Tasmanian mining firm Venture Minerals not reopening its 1mn t/yr Riley mine.
Argus ICX iron ore was last assessed at $99.15/dmt cfr Qingdao on a 62pc Fe basis on 20 July, down from $120.65/dmt on 27 June and from $160.20/dmt on 7 March. Other than a short dip below $100/dmt in November, the ICX has not been under this level since May 2020.
