FMG (ASX) Iron Ore Price

Originally posted by karasco58 ↑

Clive Palmer, CITIC fight plays into Andrew Forrest and Fortescue's hands

by Pete Ker
The long and messy fight between Clive Palmer and China's biggest conglomerate, CITIC, has few winners, but Andrew "Twiggy" Forrest could yet be one of them.

The "Sino Iron" magnetite project that CITIC built on leases held Mr Palmer's company Mineralogy may soon be forced to close because Mr Palmer refuses to give his permission for an expansion.

The management of Sino Iron sent a note to staff in recent weeks confirming that closure would likely occur this year if the operation could not win approvals allowing it to make space for more stockpiles and tailings facilities at its operations in Western Australia's Pilbara region.

While the closure may yet be avoided, it could be the spark required for Fortescue Metals Group to push ahead with the second stage of its magnetite joint venture with Taiwanese conglomerate Formosa and Chinese steel giant Baosteel.

Formosa bought into the FMG Iron Bridge joint venture in 2013 with a view to turning two Western Australian magnetite deposits into an 11 million tonne per year magnetite concentrate business.

Under the terms of Formosa's entry to the joint venture, it was required to fully fund the $US340 million first stage of the project, which delivered a pilot plant capable of producing 1.5 million tonnes per year in March 2015.

The 9.5 million tonne second stage was originally expected to cost more than $US1 billion but has never gone ahead and remains subject to the partners deciding to proceed.

Improve viability
Fortescue chief executive Nev Power confirmed that FMG Iron Bridge would produce a near identical product to Sino Iron, and he told The Australian Financial Review that closure of Sino Iron would inevitably improve the viability of the Iron Bridge joint venture.

"That product is exactly what would come out of Iron Bridge, it is a magnetite concentrate and goes into the production of pellets for the blast furnace," said Mr Power.

"Sino Iron is a fairly major supply source and that would certainly change the market dynamics."

Such a closure would also be a boost for the Karara magnetite project built by ASX-listed microcap Gindalbie Metals and Chinese giant Ansteel, which is already built and exporting.

Iron Bridge, Karara and Sino Iron are aimed at a small subsector of the iron ore market which uses iron pellets to make steel, as opposed to the iron ore "fines" that make up the majority of exports by Fortescue, Rio Tinto and BHP.

Iron ore pellets typically attract a premium to the benchmark iron ore price, but are dramatically more energy intensive and therefore expensive to produce.

Shares in Gindalbie have risen from below 2¢ to 3.3¢ in recent months on the back of strong premiums for iron ore pellets since the closure of BHP Billiton and Vale's Samarco project, which also produced an iron concentrate for conversion into pellets.

Mr Power said the size of the premium attached to iron ore pellets had been volatile during 2016, which was making it hard for the Iron Bridge joint venture to make a decision over whether to proceed with the second stage.

'Segmenting market'

"They're the indicators we're watching to see what the non-sinter market is doing to try and get some idea of what that looks like going forward," he said.

If Sino Iron continues to operate, Iron Bridge appears unlikely to go ahead in the near future.

"We are continually reviewing the commercial justification of the project, we are very confident in that project longer term, right now we just don't see that the market conditions support bringing that into the market," said Mr Power.

"It is about segmenting the market and making sure we understand that segment and that product grouping."

Less than two years ago CITIC loomed as a likely cornerstone investor in a plan to recapitalise Fortescue's balance sheet, after the iron ore miner found US debt markets were not willing to participate in a planned refinancing in March 2015.

But iron ore markets have been stronger than expected since then, and Fortescue has been able to drive its unit costs lower than anyone expected.

The miner's net debt has declined by $US3.1 billion over the past 18 months, and no longer needs to consider a recapitalisation.

Fortescue shares surged as high as $6.97 during morning trade on Wednesday; the stock's highest price since the peak of the iron ore boom in January 2011.

Expand

No better indicator of a toppy market with unsustainable margins than people promoting magnetite projects.

Hard to out-china the Chinese when these are the same high cost ops that even they struggle to get economic.

You won't be hearing about magnetite from a Rio or BHP (even if they were crippled, Enron-like companies with 15 year mine lives according to one astute poster).

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Last $20.35		Change 0.210(1.04%)		Mkt cap ! $62.65B

Open	High	Low	Value	Volume
$20.41	$20.76	$20.26	$183.4M	8.943M

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