Another beneficiary of the iron ore price surge is Champion...

Another beneficiary of the iron ore price surge is Champion Iron, an Australia-listed producer that bought the mothballed Bloom Lake mine in Canada’s Quebec in 2016 for US$10.5 million. The previous owner, Cliffs Natural Resources, spent US$7 billion acquiring the mine in 2011 and building infrastructure over five years.

Analysts forecast prices to remain above US$100 a tonne in 2021 with the four largest producers unable to significantly expand production.

Analysts forecast prices to remain above US$100 a tonne in 2021 with the four largest producers unable to significantly expand production. PHOTO BY ANDREY RUDAKOV/BLOOMBERG FILES

“Look at what happens when the herd mentality sets in and most analysts and investment bankers say iron ore prices are going to x and staying there forever,” said Michael O’Keeffe, Champion’s founder and executive chairman. “I like to take countercyclical views.”

O’Keeffe, a metallurgist by training and former managing director of Glencore Australia, is known in the industry for building up Mozambique-focused Riversdale Resources, which Rio bought for US$4 billion at the peak of the mining boom in 2011 before selling it for just US$50 million during the commodities crash a few years later.

With the financial backing of Glencore, the Quebec government and Chicago fund Wynnchurch, Champion restarted mining in February 2018 and produced 7.9 million tonnes in its first year of operation. It is planning a US$500 million expansion to double production to 15 million tonnes a year by mid-2022, which it says would cut production costs from US$40 to US$35 per tonne including shipping.

Champion forecast long-term sustainable iron ore prices at about US$85 per tonne in its expansion project feasibility study. Its high-grade output fetches a premium over the benchmark iron ore price.

“We’re getting US$166 to US$167 per tonne,” said O’Keeffe. “I mean, that allows us to just print money. But that’s not going to always be there and our decisions are not based on today’s price. It’s more about how we see the market going.”

We're getting US$166 to US$167 per tonne. I mean, that allows us to just print money

MICHAEL O'KEEFFE, CHAMPION'S FOUNDER AND EXECUTIVE CHAIRMAN

He said Brazil would struggle to increase production rapidly in the short to medium term because of the pandemic and fallout from recent mining disasters, while Australia lacked spare capacity at existing high-grade projects. His longer-term goal was to expand output to “somewhere between 28 million and 30 million tonnes a year of high grade.”

https://financialpost.com/commodities/mining/junior-miners-bring-abandoned-iron-ore-projects-back-prices-surge

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