IT became clear that iron ore wasn't the vogue metal any more when explorers started to slip in references to potential rare earth or potash riches, rather than magnetite turf with billion-tonne "exploration targets". While the fizz has abated, there should be enough to keep punters interested out west as the Pilbara juniors get their ducks in a row.
In recent weeks, the sector has had to digest the West Australian government surprise royalty increase on iron ore fines, the unexpected takeover of the up-and-coming Brockman Resources by an obscure Hong Kong company, as well as Mitsubishi's reported reluctance to stump up for Oakajee Port and Rail Project (a vital development for wannabe producers such as Murchison Metals).
But the most important trend, pricing, still looks highly favourable and here's a sample of the expert views.
The National Australia Bank reckons that pricing is at, or above, pre global financial crisis levels. June quarterly contracts for price settled at $US170 a tonne (freight on board), consistent with the three-month trend.
Macquarie Equities forecasts a $US150-$US190 price for the next three years, while Goldman Sachs's British analysts upped their 2012 price forecast by 10 per cent to $US160/t (declining to $US120/t in 2013).
"The medium-term outlook for seaborne iron ore appears tighter than previously thought," the firm says.
More conservatively, JP Morgan expects prices to normalise to $US70/t.
The dilemma is whether investors should chase the existing production to benefit from present price strength or pay less for the hopefuls down the road. The risk for the less advanced plays is the iron-ore price comes under pressure as Rio Tinto, BHP Billiton Fortescue Metals (and Brazil's Vale) mount massive expansion projects.
Criterion believes many investors would be as well off with a tranche of BHP or Rio Tinto, which earn a goodly chunk of revenue from iron ore.
There's also Pilbara's third force Fortescue Metals, if you can stomach the $20 billion valuation and Twiggy Forrest's departure as chief executive.
Down the food chain, JP Morgan nominates Mt Gibson Iron (ASX code: MGX) and Murchison Metals (MMX) as the best leveraged to near-term iron ore pricing. Mt Gibson operates Tallering Peak and Koolan Island and is looking to bring another (Extension Hill) into production. Murchison has the Jack Hills project in 50/50 venture with Mitsubishi.
The other decisive factor is access to existing infrastructure, with BHP and Rio Tinto reluctant to share their train sets with junior rivals. This is under challenge, but the process is moving at the pace of a lame snail.
In the context of infrastructure, Flinders Mines (FMS) is an interesting play as it enters the feasibility study phase of its 748 million tonne Pilbara Iron Ore Project, vaunted as a 15 million tonnes a year mine with a $640m development cost. As in real estate, location is crucial: on one side sits Rio Tinto's undeveloped Caliwingina North resource. On the other is Fortescue Metals' Solomon, while Rio's Brockman lies to the west.
Another on our radar is Iron Ore Holdings (IOH), which owns three projects in the Pilbara with total compliant resource of 689mt. IOH hopes to complete a pre-feasibility study on its 240mt Iron Valley resource (in the Central Pilbara) with expected completion in the September quarter.
As with Flinders Mining, Iron Valley is flanked by the big three, with access to Fortescue's rail seen as the likeliest option.
Its second project, Bungaroo South (in concept stage) is 50km from Aquila Resources' proposed rail line, as well as Rio's Robe River mine.
Of course the Pilbara is not the be all and end all of iron ore; it just happens to have an awful lot of it. Ferrous fortune seekers may prefer options further afield such as Sundance Resource's Mbalam project in Cameroon, in terms of takeover potential.
MMX Price at posting:
91.0¢ Sentiment: Hold Disclosure: Held
