Smaller end of WA’s iron ore miners likely to thin out12th...

Smaller end of WA’s iron ore miners likely to thin out

12th October 2007, 12:45 WST (The West Australian)



Further consolidation of the smaller end of Western Australia’s iron ore sector will continue, analysts predict.

Aztec Resources Ltd was gobbled up by Mount Gibson Iron Ltd in January, Gindalbie Metals Ltd announced a friendly merger with Sundance Resources Ltd late last month and this week, Murchison Metals Ltd launched a near $1 billion hostile bid for rival Midwest Corporation Ltd.

In the absence of much comment from the parties involved, market observers have speculated in recent weeks as to whether Fairstar Resources Ltd’s off-market takeover bid for Golden West Resources Ltd will be the next transaction in the latest wave of consolidation.

Fairstar launched its bid for the much larger target in early September, offering five of its shares for each Golden West share.

Golden West has not yet received a bidder’s statement from its suitor and has not recommended a course of action to its shareholders other than to hold tight for the time being.

DJ Carmichael head of research Paul Adams confirmed there was currently a lot of activity at the junior end of the iron ore market.

“Iron ore is obviously a very hot sector ... and we think there is good prospectivity for those companies to do well over the next 12 months, particularity with the outlook for the iron ore (price) negotiations,” he said.

With bullish price expectations, iron ore miners are keen to secure additional, quality assets.

Mr Adams predicted Andrew Forrest’s Fortescue Metals Group would look to increase its supply of direct shipping grade iron ore which, as the name implies, can simply be dug up and exported.

Magnetite, on the other hand, is a less desirable variety of iron ore as it usually requires pelletising and therefore involves far greater capital requirements than direct shipping ore (DSO).

However, in the long term, once the flow of DSO from WA begins to slow, attention will turn to magnetite, Mr Adams said.

This was why China’s insatiable steel mills - looking 10 to 20 years into the future - have secured involvement with such projects.

“It enables them to lock up the junior miners to a certain degree and then, depending on how the agreements are structured, those companies are held to a Chinese timetable,” he said.

Generally speaking, magnetite mining is a harder road.

Most investors do not have the patience to wait four years for a magnetite project to get into production whereas a DSO project can be up and running in half a year.

Mr Adams said of the many magnetite plays in WA, only one or two would get into production in the next three to four years.

A company that has both DSO and magnetite, but goes out of its way to play down the latter, is Atlas Iron Ltd.

Mr Adams singled out Atlas as being a worthwhile investment, with the potential to offer considerable bang for ones buck.