Ann: Annual Report to Shareholders, page-4

From The Oz. Edited to keep it brief and relevant to RHK.

https://www.theaustralian.com.au/business/*/news/bulk-buys-the-surprise-iron-ore-stock-thats-bucked-the-trend-in-2024/news-story/1ab69186c40d14bb688a9f3612ef588c

Bulk Buys: The surprise iron ore stock that’s bucked the trend in 2024

Josh Chiat

September 26, 2024

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Of the 42 iron ore stocks tracked by Bulk Buys, just five are in positive territory in 2024

Spot prices have fallen from US$140/t to US$97/t, salvaged by a bump from Chinese stimulus plans this week

But the top ASX iron ore stock of 2024, Red Hawk Mining, is up 44%. We unpack why with MD Steven Michael.

Three-quarters of the way through the year and 2024's top iron ore performer is a reminder to investors that while broader market forces hold significant sway, they don't determine everything when it comes to stock behaviour.

Not accounting for market cap and the fact some companies trade on exposure to other commodities, the iron ore stocks under our coverage have fallen by an average of 28% this year.

That's hardly surprising given iron ore prices have fallen, as judged by the Singapore exchange, 31% since the end of 2023 – from US$140.08/t to US$96.50/t yesterday.

Just five of the 42 companies on our list are sitting on gains over the first nine months of 2024, with majors BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue (ASX:FMG) off 15%, 11% and 35% respectively.

Take away Magmatic Resources (ASX:MAG) and Talisman Mining (ASX:TLM), both sidetracked by other commodities, and you're left with just three significant gainers in CZR Resources (ASX:CZR) (+21%), Admiralty Resources (ASX:ADY) (+29%) and the standout Red Hawk Mining (ASX:RHK) (+44%).

So why has Red Hawk, which owns the Blacksmith project in WA's iron ore stuffed Pilbara region, bucked the trend this year?

MD Steven Michael said the fact the pre-development company wasn't exposed to the spot market today was a major plus.

"I think if you were a junior iron ore producer with medium cost, then you're definitely seeing margin contraction at the moment, whereas our project is a year and a half to two years away from first production," he told *.

"And then we're producing for 20 years beyond that. So the short term aberrations you see today hopefully don't affect us as much."

Turnaround tale

Without a doubt, the success of Red Hawk, previously known as Flinders Mines, is coloured by the fact it was an underperformer for a long time.

Backed by New Zealand's minted Todd family, the stock has been around in various forms for over two decades.

Now valued at $170 million, its deposits had previously sat at the centre of an ambitious proposal to build a multi-billion iron ore project with the support of a State agreement, comprising a deep water port at Balla Balla to Port Hedland's south, a new rail corridor and a massive resource grading just 52% Fe, 10% shy of the 62% Fe benchmark.

The rebadged Blacksmith is better suited to a junior developer, with a May pre-feasibility study suggesting a 5Mtpa operation could cost just $217 million to build, exporting a 60.5% Fe for 23 years at C1 cash costs of US$51/t.

Paying back in 3.3 years at an iron ore price of US$90/t, Michael said the aim now was to identify infrastructure options that could potentially grow the project from a 3-5Mtpa exporter to 7-10Mtpa.

The main limiting factor is port space and trucking distances, often the bane of junior iron ore producers who, unlike the majors, do not own and control their entire logistics network.

It has 1Mtpa secured from 2026 at the Utah Point facility at Port Hedland, originally intended to be accessed by small miners but now dominated by volumes from Gina Rinehart's Atlas Iron, Mineral Resources (ASX:MIN) and manganese producer Consolidated Minerals.

But discussions are underway about accessing more of the 24Mtpa port as Blacksmith ramps up. But even Utah Point, while proving a useful yard stick for feasibility work, is 450km away.

A larger port allocation closer to home, made possible if infrastructure owners take the risk via a take or pay arrangement with RHK, could improve economics further.

It's one reason, Michael says, the company has slowed down the pace of its work on a DFS, due out next year ahead of a decision to mine.

"I think for us with a resource of this size, to maximise the value in the return to shareholders, we need to look at increasing the export capacity," he said.

"And so what we're doing, and the reason we've taken a bit of a pause between completing the PFS and launching the DFS, is we want to get the scale of the project right.

"And to do that, we need to understand what are the various long term port strategies. So we don't need to land on a definitive "this is the ultimate export port".

"But at least we (want to) know that there are a couple of options that are realistic, that can see us go beyond that 3-5Mtpa level up to something where the road ends up becoming the limiting factor, as opposed to the port."

Michael said reducing the trucking costs with shorter haulage times, it could also enhance the project by making lower grade ore deeper in its resource, which draws a steeper discount to the benchmark, economic.

Chinese medicine

The outlook for iron ore has appeared bearish in recent months, with China's property sector performing worse in the middle of 2024 than it has in 18 years and all bar a handful of steel mills in the world's manufacturing and construction stronghold losing money.

But a major stimulus package announced on Monday has given, at least on a temporary basis, a much needed shot in the arm to the sector.

Since Monday iron ore prices have risen from US$89.55/t to US$96.70/t in the Singapore market.

Michael agrees with major iron ore producers, who largely see prices hovering around the US$100/t range, with brief peaks and troughs US$10/t either side of those levels, cautioning that it was difficult for a non-producing junior to comment on the market.

In terms of paying customers, he said there had been plenty of interest in RHK's fines product, which resembled BHP's Jimblebar fines in nature.

"We're really targeting that +60% Fe level," Michael said.

"When you drop below that 60% Fe level you can find yourself priced as a premium to the low grade 58% Fe benchmark, whereas we really want to be seen as a discount to the 62% Fe.

"(Customers who have completed test work) don't see a really significant discount outside of the grade."