Iron Ore: The cornerstone and future of Australia’s resources

To most everyday Australians, hearing the word ‘iron’ makes us think of steak, Nutri Grain or Robert Downey Jr. But further than that, iron remains one of the most integral and non-substitutable elements on earth.

Iron ore, which refers to iron found in its oxide forms in rocks underground, is an integral substance in the global infrastructure industry. If it is rich enough that it contains a pure iron (Fe) percentage of 60% or higher, it is smelted in a blast furnace with small amounts of carbon and other elements and transformed into what is known as ‘pig iron’, an intermediate product before finally being converted to steel. Given that 98% of iron ore is converted to steel, this resource is indisputably an invaluable and irreplaceable cog in the wheel of modern infrastructural development.

Ten years ago, the Christopher LaFemina, mining analyst at Barclays Capital, asserted that iron ore is “more integral to the global economy than any other commodity, except perhaps oil”, and this certainly still rings true. Steel cannot be made without iron, and without steel we would not have the Eiffel Tower, Statue of Liberty, most other bridges and buildings, space rockets, or even cutlery. To accommodate rising populations, the world’s most technologically advanced and rapidly evolving cities, such as Shanghai, Beijing and Dubai to name a few, are buildings upwards, not outwards. The vast increase in high-rises means that, now more than ever, steel is at the cornerstone of global metropolitan development – and Australia plays a vital role in this process.

Iron ore trading has traditionally been the second-largest commodity market after crude oil and Australia has a substantial share of such market, accounting for about half of the seaborne iron ore market. Australia has the world’s largest iron ore economic demonstrated resources (EDR) with 28% at 51 545 Megatons (Mt), followed by Russia (14%), with Brazil and China sharing equal third spot (13%). Australia’s share of the seaborne market into China increased from 59% to 64% in 2015, with low-cost Australian miners being well positioned to continue to supply in a market characterised by low prices.

So what does all this jargon mean for Australia’s iron ore mining industry?

With demand for steel not slowing down by any means, it may be worth keeping tabs on some of the smaller iron-focused companies, especially those with advanced projects nearing production. Already in 2019, we have seen major spikes in the share prices of major iron producers BHP Billiton, Rio Tinto and Fortescue Metals Group which have been able to ride the wave of iron ore prices to the pleasure of shareholders.

One iron-focused company that could be worth watching is Carpentaria Resources (ASX: CAP) which has begun capitalising upon the wealth of the iron ore caches that Australia offers. Their flagship Hawsons Iron Project is situated in the rich Braemar Iron Province in Broken Hill, NSW, and their Hawsons Supergrade ® product is the best iron product at 70% Fe, globally.

With Carpentaria reportedly in negotiations with Tier 1 offtake partners, Hawsons is likely to play a major role in the future of Australia’s iron industry where a prefeasibility study identified the project to be capable of producing 10 million tonnes of Hawsons Supergrade ® each year, when production commences, with a mine life of 20 years.

At current market prices, Hawsons Supergrade ® would sell in the vicinity of USD $120 per tonne so if with their project projected to produce 10 million tonnes per annum for 20 year, the scale of the project presents, potentially, an opportune one for investors.

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Carpentaria Resources trades under the ASX code: ‘CAP’

*Reach Markets have been engaged by CAP to assist with private investor management.