Ann: Madagascan Mining Code Implementation Procedures Enacted, page-9

Majors seem to be itching to dilute their iron ore divisions on concerns that waning demand in China and the onrush of supply from here, Brazil and Africa could strangle the golden goose before it hatches any more super-profits.

The latest to feel the fury of the market was Fortescue (ASX:FMG), which was unable to spin record hematite shipments from its Pilbara iron ore mines through Port Hedland into the positive story some analysts read.

Investors punted Twiggy’s ASX 20 giant 2.3% lower Thursday as it failed to generate additional cash in the December quarter, closing with its bank balance unchanged at US$3,4bn and with net debt of US$2bn after spending US$1bn on capex in the three months to December 31 despite lifting shipments 4% QoQ to 49.4Mt.

That helped C1 costs fall 10% from US$20.16/t in the September quarter to US$18.24/t, though that remained 4% higher than costs 12 months earlier.

Shipments from new magnetite mine Iron Bridge surprised to the upside as well, with output of 1.5Mt taking total shipments for the half year to 3.2Mt, well within the range required to meet its 5-9Mt FY25 guidance.

FMG captured 85% of the Platts 62% Fe benchmark iron ore price of US$103.39/dmt, collecting US$87.40/dmt for its hematite ore, while its high grade Iron Bridge concentrate traded at 99% of the 65% Fe index and 113% of the 62% index at US$116.85/dmt.

The result came within a week of revelations including news that Rio Tinto (ASX:RIO) had entertained a merger with Anglo-Swiss mining and trading giant Glencore, which would have cut its reliance on iron ore earnings from over 60% of earnings to just 36% by adding a string of large copper, zinc and coal assets to its portfolio.

Rio and BHP (ASX:BHP) both saw prices paid for their iron ore tumble in recent months. BHP’s first half saw prices drop 22% year on year to US$81.11/wmt. Rio’s fell from US$105.8/dmt in the first half of 2024 to US$89.7/dmt in the latter half (US$97.3/t to US$82.5/t on a dry metric tonne basis).

The challenges facing Chinese steel makers

China’s steel sector, the fuel for iron ore’s price strength in recent years, is delicately balanced.

Steelmakers have produced over 1Bt annually since 2020, the country’s peak at 1.065Bt. But its property sector, the traditional engine room for the market, has been pretty much cooked since Covid.

Manufacturing, electric vehicles and green energy have picked up some of the slack. But the past couple of years would have been even bleaker had it not been for record exports. Those could be curtailed as tariffs against Chinese products, both steel and the goods manufactured from it become more likely both in the EU and from the new Trump Administration in Washington.

China has accelerated steel exports but run into anti-dumping allegations. Pic: MySteel

Research from MySteel this week shows just how bad the situation was for China’s largest 36 steel producers.

Nearly half lost money and just four improved their profit-loss statement.

Pic: MySteel

While weaker markets tend to favour large, established players with low cost bases, the best received iron ore quarterlies have arguably come from smaller producers.

Mount Gibson Iron (ASX:MGX) sold ~700,000 wet metric tonnes of 65.2% Fe at cash operating costs of $94/wmt, turning out $16 million of group cash flow at its high grade Koolan Island mine. Its fines, including provisional pricing, pulled in US$91/dmt FOB – $145/dmt Aussie at current exchange rates.

The project has some mortality issues. MGX is milking the cash over the final two years of the remote Kimberley mine’s life, expecting to produce 2.7-3Mt at costs of $95-100/wmt FOB in FY25.

Mount Gibson had $451m of cash and investments with no debt, funding a planned buyback of up to 5% of its stock and the potential acquisition of new operations.

“At prevailing prices, and subject to the extent of any interruptions from the northern wet season now underway, we continue to anticipate positive cashflow generation over the remainder of the financial year,” chief executive officer Peter Kerr said.

“We remain focused on maximising production and cashflows from the high-grade Koolan Island operation over its remaining two year mine life, which together with our robust financial position, places the company in a good position for investments and opportunistic acquisitions.”

Fenix Resources (ASX:FEX), which counts MGX as a large shareholder, ended Thursday’s trade even after announcing a record 593,580wmt of shipments from its Mid West WA iron ore mines in the December quarter.

Unlike the large miners who sell linked to spot rates, Fenix operates a hedge book for much of its ore, outperforming the market price by 3% during the December quarter at US$106/dmt. Its lower grade Shine mine collected US$80/dmt, but Fenix says the grade profile will improve there.

Cash costs came in at A$82.8/wmt, against prices equivalent to A$146/dmt CFR generating an average C1 operating margin of A$31/dmt after shipping costs of A$27/t were taken into account.

Fenix locked in an additional 240,000t of hedges for forward sales through to December 2025 this week, with a hedge book of 660,000t at A$155/t through the end of the year providing a bullwark against a hypothetical deterioration in iron ore pricing.