Iron ore prices have risen to record levels in recent weeks as the raw material for steelmaking has shown tremendous resilience against a slowing global economy and weakness in China’s property sector.
The resilience in prices has been attributed to the potential for new government measures by China to support its economy as well as restocking of iron ore and steel inventories by Chinese steel mills ahead of the Chinese New Year, which begins on February 10, 2024, and lasts for 14 days.
Still, higher demand from Europe, North America, East and Southeast Asia, and the Middle East will keep the benchmark 62%-grade iron ore fines elevated at around US$100 per tonne for the rest of the year.
Supply crunch?
Contrary to earlier expectations of a surplus, the iron ore market is now poised for a deficit due to dwindling inventories and lower supply from the world’s two largest producers, Australia and Brazil, in the third quarter.
“Rather than facing a surplus for this year, the iron ore market is now set for a clear deficit,” Goldman Sachs (NYSE:NYSE:GS) said in a recent report, a reversal from its previous forecast for a surplus.
Consequently, the investment bank has slashed its global iron ore supply estimate for 2023 to 1.536 billion tonnes from 1.557 billion tonnes and expects the full-year average price for 62% iron ore to surge from $101 per tonne to $117 in 2023.
For 2024, its analysts are expecting a 22% jump from their previous forecast of $90 per tonne to $110.
Echoing Goldman
Its peer JPMorgan (NYSE:JPM) echoed similar sentiments when it revised its iron ore price forecasts to US$117 per tonne for 2023, $110 for 2024 and $105 for 2025.
“The long-term (price) outlook improved modestly during the current year as iron ore supply growth was not as strong as expected.
“China’s steel production also remains resilient despite weak demand,” the bank said.
Iron ore price outlook, quarterly
Australian exports
Australia’s Office of the Chief Economist (OCE) still expects growth in export volumes from Australia and Brazil, albeit at a collective low of 3.4% per annum for 2024-2025.
This optimism is based on a ramp-up in greenfield projects by Australian miners and significant planned expansions by Brazilian producers such as Vale and CSN Mining.
“Australian export volumes remain strong, with further greenfield supply from established and emerging producers expected to come online in the next few years,” the OCE said in the September edition of its Resources and Energy Quarterly.
However, export earnings are expected to decline from $124 billion in 2022-2023 to $120 billion in 2023-2024, and to $99 billion in 2024-2025, driven by lower prices as global demand softens over the next two years.
In the spotlight: ASX small-caps
Let’s take a look at some of the companies extracting iron ore that made strides during the September quarter to take advantage of the market’s strength.
AKORA Resources
Madagascar-focused Akora Resources Ltd (ASX:AKO) is developing the Bekisopa, Satrokala, Tratramarina and Ambodilafa iron ore prospects, covering 308 square kilometres of tenements.
The quarter’s highlight for the company was the lifting of Bekisopa’s direct shipping ore (DSO) indicated and inferred resource to a total of 9.1 million tonnes.
This is after adding 5.5 million DSO tonnes at 60.3% iron along the prospect’s 6-kilometre strike in the southern zone, which is a 34% increase at a higher grade than estimated in April next year.
Further infill drilling was also completed at the northern and central zones to add more high-grade DSO iron ore tonnes.
AKO managing director Paul Bibby and director Matt Gill visited Bekisopa during the quarter to host community meetings at the Tanamarina and Bekisopa villages ahead of a pre-feasibility study (PFS) later this year.
The early feedback has been positive, with the company providing medical and educational supplies to the local community during the visit.
Over at the Satrokala project, a ground magnetic survey was carried out to follow up on high-grade rock chip assays reported in June 2022.
The findings, expected in the first quarter of 2024, will be instrumental in identifying precise locations for exploratory drilling in the subsequent quarter.
CuFe Ltd (ASX:CUF) became the 100% owner of the JWD Iron Ore Project in Western Australia (WA) during the three months to September.
JWD shipped 20% more iron ore tonnes compared with the June quarter, driven by increased sales for both lump and fines at US$107 per wet metric tonne (wmt) on an FOB basis, 7% higher quarter-on-quarter.
“It’s been pleasing to see volumes up, sales price up and costs down at our JWD iron mine over the quarter,” CUF executive director Mark Hancock said.
“We completed the acquisition of the remaining 40% of the project during the quarter, which leaves us well placed if that trend continues into the future.”
The emerging iron ore producer was active in the exploration space, collecting 267 rock chips from outcropping pegmatites and weathered regolith at its North Dam Project, which produced results anomalous in rare earth elements of up to 1,770 parts per million (ppm) total rare earth oxides (TREO), 43.93% niobium, 14.53% tantalum and up to 3,206 ppm lithium oxide.
This suggests the source location is nearby, which the company will look into further.
“We have also remained active in the exploration space, with a diamond drilling campaign conducted at Yarram over the quarter, which will provide valuable information regarding the geotechnical and metallurgical properties of the ore and with exciting first-pass rock chip results at our North Dam lithium and rare earths project providing us ready-made drill targets,” Hancock added.
CUF also broadened its Western Australian portfolio with the acquisition of two tenements prospective for critical minerals, the first in the West Arunta region and the second in the Tambourah region of Pilbara.
It held $4.9 million in cash at the end of September.
Fenix Resources
Fenix Resources Ltd (ASX:FEX) shipped 352,411 wmt of high-grade iron ore from its 100%-owned Iron Ridge Iron Ore Mine in WA during the September quarter, bringing the total shipped to about 3.6 million wmt.
The average grade shipped was 64.7% iron for lump and 63.4% for fines, reflecting the quality high-grade nature of the ore body.
Additionally, the company’s Fenix Port Services marked its first shipment from the newly expanded Geraldton Port facilities by shipping 196,176 wmt of iron ore on behalf of third-party customers.
The on-wharf Geraldton Port storage facilities.
FEX reduced its C1 cash costs for Iron Ridge by a further 5% to $75.9 per wmt during the quarter, an achievement the company described as impressive, especially on the back of strong iron ore prices, which led to a net C1 operating margin of about $70 per dry metric tonne (dmt) excluding hedging and quotation period adjustments.
“This outstanding operational performance from our Iron Ridge Iron Ore Mine continues to provide a solid and reliable base to generate positive cash flow and enable disciplined investment in the expansion of our business,” FEX chairman John Welborn said.
“Since June 2022, Fenix has reduced our C1 cash costs by more than $15 per tonne. This has been achieved in the face of unprecedented cost inflation among our industry peers and is the result of the advantages generated by the consolidation of the ownership in our Fenix-Newhaul business and the expansion of our port facilities via the acquisition of Mount Gibson’s Mid-West assets.”
The acquisition of the Mid-West iron ore, rail and port assets was completed during the quarter, with the transfer of $10 million in cash, 60 million fully paid shares and 25 million options in FEX to Mount Gibson.
The company made a net profit after tax of $29.3 million on total revenue of $196.8 million from shipments of 1.36 wmt of iron ore for the year ending June 2023, which allowed it to pay a final dividend of 2.0 cents per share totalling $13.9 million on September 15.
As of end-September, it was cash-strong with $59.6 million in hand.
Fenix has been taking advantage of strong iron ore prices to strengthen its hedge book, which, as of November 13, comprised a total of 420,000 tonnes at fixed prices of A$170.10 and A$170.25 per tonne until June 2024.
Hawsons Iron
Hawsons Iron Ltd (ASX:HIO) has begun work in earnest to restart a bankable feasibility study (BFS) for its namesake, high-grade magnetite project near Broken Hill in NSW, including appointing non-executive director and experienced investment banker Jeremy Kirkwood as chair to lead the company through its next critical phase.
The company seeking a role in the emerging green steel supply chain made the decision to restart the BFS to assess an 11 million tonnes per annum project after shelving it in October last year due to global cost pressures and restricted access to equity markets.
A strategic review completed at the end of the June quarter recommended a three-pronged action plan to further improve the project’s economics and net present value (NPV).
HIO is now in the preliminary stages of inviting potential strategic partners to consider investing in the project and the BFS.
To strengthen the business case, a pilot test program was carried out on a new Phase 1 mineral processing circuit developed by global design and engineering leader Stantec (TSX:STN).
The tests returned up to 30% lower comminution energy usage versus theoretical estimates and generated valuable data, which will be used in follow-up tests to improve flowsheets aimed at further reducing capital and operating costs.
On the exploration side, HIO commenced a follow-up drill program in the Fold and Limb zones, south of the existing mineral resource, to seek an additional 100-140 million tonnes of shallow magnetite to improve the project’s NPV.
The 21-hole program is scheduled to be completed by the end of the year, weather permitting, and the outcome will be incorporated into a database to support discussions with potential funding partners.
The company held cash of $5.4 million at the end of September after deducting outflows of $1.9 million.
Magnetite Mines
Magnetite Mines Ltd (ASX:MGT) fast-tracked the search for strategic and joint venture partners for its Razorback Iron Ore Project during the quarter and received strong interest from 10 high-profile domestic and international parties, including steelmakers, commodity trading houses and private equity groups.
The company is aiming to produce direct reduced iron (DRI) iron ore grades of 68.5% iron, less than 2.5% silica and 0.4% alumina for at least the first 10 years of Razorback’s operations.
These interested parties are conducting due diligence and evaluation, including visiting the project site to witness Razorback’s scale, quality and development potential.
While this is ongoing, MGT worked on various high-value work streams in preparation for a definitive feasibility study (DFS) early next year, identifying cost-saving measures and infrastructure options ahead of a final investment decision.
This includes access to electricity to power Razorback’s 5 million tonnes per annum production and to the Murray Basin Wastewater source for ore processing, for which it has secured exclusive rights from the South Australian Government.
During the quarter, it held the first of a series of meetings under its ‘One-to-One Meeting’ initiative with members of the Peterborough and other Mid-North communities to discuss topics such as mine planning, traffic impact, job pathways, economic development and engagement strategies.
As well, an information day was organised for the Ngadjuri community in August to expand engagement with the Traditional Owners on whose land Razorback is situated.
General manager of Sustainability Allan Kane hosting one-to-one meetings in Peterborough.
MGT is targeting the submission of a Mining Lease Proposal to the SA Government in the first quarter of 2024.
The company made two key appointments during the quarter, that of Jim McKerlie as chair of the board and Simon Smith as chief financial officer.
MGT had $3.08 million in cash and cash equivalents at quarter-end after spending $730,000 on operations and exploration-related work.