The importance of high-grade iron amidst recent price discounts and changing appetites

With recent market corrections, there is a growing concern about big miners maintaining high-grade Iron Ore for key steelmaking commodity. This has led major players such as BHP, Rio Tinto, and FMG to provide price discounts amid a softening outlook on the country’s biggest export. 

Mining experts have linked the dip in the market to China’s decision to let its currency depreciate in response to Donald Trump’s wave of new tariffs on Chinese goods. However, the head of Australian iron ore miner Fortescue Metals Group believes that this latest escalation in the trade war between the US and China has not yet affected the Chinese demand for iron ore.

Furthermore, the Iron Ore industry is moving into uncharted territory. BHP recently released a statement outlining how its approach to climate change was ‘evolving’, and recent news out of China is that they are looking to switch to more expensive Iron Ore products to help address air quality and other pollution issues. Over a four-year campaign against pollution, as well as excess capacity in heavy industry, China has shut 700 small steel mills with 140 million tons of steel capacity deemed substandard, plus 150 million tons of inefficient capacity at larger firms.

Iron ore pellets, typically with 64 percent iron content or above, can be shovelled directly into blast furnaces without going through a dirtier process known as sintering and are therefore less resource intensive but also have a smaller effect on emissions. A push now for Australian miners is to look to provide supply for this evolving market in the long term, as lower grade resource specialists are likely to ‘feel the pinch’; according to research specialists out of China.

Recent studies have found that Iron Ore products from the large Jimblebar mine in Western Australia’s Pilbara region, which normally has iron content at 61%, are likely to drop down to 59.5% for the 2020 financial year. Other issues revealed operational challenges in maintaining the quality of Iron Ore in the Brockman hub mine in Western Australia, prompting miners to cut shipment forecasts to maintain the quality of Iron Ore. The impact of the grade reduction has led to a discount of between $5-6 a tonne.

Iron Ore prices had previously soared to record heights not seen since 2014 and provided a major boost to the Australian economy and the Federal government’s finances. The Iron Ore price, however, has recently seen a large correction from these record highs and returned to the mean, meaning the market is closely looking at products with Higher Grade Iron Ore as a key differentiator. 

Australian company Carpentaria Resources is spearheading a new majority-owned mining project, and lays claim to the world’s best iron ore product – “Hawsons Supergrade® pellet feed”. At 70% Fe, if in production it would be the highest grade Iron Ore product globally.

So what makes the Hawsons Iron Project so special? Located 60km south-west of Broken Hill, the project contains an inferred resource of 1.4 billion tonnes at 15.5 percent iron for 220 million tonnes of 69.9 percent iron concentrate. 

The project will specialise in the extraction of magnetite ore, which, once in production, will be treated to form a product with an exceptionally high Fe content and low impurities and is one that will be highly sought after by steel makers. As leading steel makers are looking towards premium quality Iron Ore sources for their own products, there is likely to be an increased demand specifically for magnetite based Iron Ore.

With Carpentaria Resources’ Supergrade product both holding the ideal physical properties and being magnetite favoured by pelletisers, it is certainly well-positioned. The high quality means it should be able to attract a strong price premium, with fewer and fewer miners capable of producing a product of its quality economically.

Carpentaria also boasts the world’s leading pellet feed project, which as stated has the potential to be a huge growth market. It is thought that 20 percent of China’s more-than-a-billion-ton annual ore demand will continue to accelerate its current transformation from lower to higher-grade ores as the country looks into 2020 and beyond to stop blanketing its city centres with smog. Steel executives speculate that the forecasted demand shift in the top ore market will mean declining purchases of low-grade supplies and greater demand for pelletised ore of a higher grade — with potentially major implications for ore exporters in Australia, especially those who can produce pellet feed, like Carpentaria Resources. 

Hawsons Supergrade® 70% Fe product should sell with a very attractive premium over quoted Iron Ore prices. A recent prefeasibility study identified the project to be capable of producing 10 million tonnes per annum for 20 years, so the scale of the project presents a huge opportunity for the company. Carpentaria Resources’ prefeasibility study had conservative estimates of Iron Ore Pricing, meaning the dip after an historic price rise should not affect their plans to seek a BFS, offtake partners and eventually begin production of this high-grade product. 

 

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