Iron Awe - how and why HIO could 100X, page-454

1. Spot iron ore price last night on Dalian platform increased 4.25%, an increase of 30 Yuan/ton.
2. Singapore iron ore spot price was closed at USD $127/ton yesterday and will likely test USD $130/ton today.

The question is will it hold above USD $130/ton and break out to USD $135-$140/ton in the weeks ahead? This is the 3rd time it tested USD $130 over the last 4 weeks or so. My gut feeling is it will hold and break out to new high this time. RIO and BHP are struggling to meet their production targets due to labour shortage caused by Covid. Vale is also in the same situation due to closures of some mines caused by heavy rain in their mining regions. Plus, Chinese mills are stocking up iron ore feedstocks to be ready for production ramp up after the Olympic in Feb and after they have achieved their government production curb for 2021.

Another positive note: thermal coal and coking coal prices are back to all time high due to Indonesia's ban of coal export to make sure their domestic power generators have enough coal stocks for electricity generation. Indonesia is the world's largest coal exporter. Higher coal prices make it more economical for steelmills to use higher grade iron ore feedstock to produce steel, thus pushing up the price of Fe65%. The premium between Fe65% over Fe62% is now at USD $31.30. This premium is likely to increase further in the years ahead as more and more new DRI/EAF furnaces being built to meet new environmental regulations in the wake of COP26 climate conference in the UK. It is almost a guarantee that most if not all of new furnaces to be built to replace old blast furnaces in the years ahead will be DRI/EAF furnaces and only high grade ore concentrate can be used for these types of furnaces. And it can only mean one thing: HIO's Supergrade will be in hot demand and will be chased by steelmakers and commodity trading houses (think Mitsui & Co). And the premium HIO will get for its product will only increase further.

At $130/ton for Fe62%, Fe65% is around USD $162/ton, and Fe70% is around USD $195-$200/ton. But it won't stop there. As I said above, when those DRI/EAF furnaces become the common, standard furnaces that all steelmills around the world must build and operate to stay relevant in a Net-zero Emission world, HIO's product could command a whopping premium far beyond the current premium. The effect of it on its EBITDA, net profit, and NPV will be beyond everyone's comprehension and appreciation capability. In other words you wouldn't dare to dream of.

My previous NPV8% was focused on 300mil tons and 350mil tons scenarios but I won't be surprised at all whatsoever if the resource upgrade takes it way above the current 400mil tons. I believe all the big investors, institutions, and potential take-over predators (FMG, Gina Rineheart, MIN,...) will be watching the next resource figures very closely.