The best way to view the GRR production cost for iron ore pellets is to look at the quarterly reports. The production cost is always noted in the Quarterly Report as well the average received prices of the pellets each quarter.
Dec Quarterly
"Increase in average received prices for the quarter to US$174.69/t (A$236.77/t) (FOB Port Latta) compared with US$130.22/t (A$182.49/t) for the September quarter.
• Unit cash operating cost decreased for the quarter to A$101.13/t compared with A$101.45/t for the September quarter."
The pellet price has gone up US$60+/tonne since the Dec report.
" IO is likely to range between about USD50 and USD170. What do you expect pellets to range between?"
There is always a margin between 58% grade v 62% grade v 65% grade v pellets.
Pellets always carry a premium even when iron ore prices are low, although the margin does contract. Currently the margin is increasing due to China's push to reduce pollution. This will most likely continue and its interesting to note that Shagang ( largest private steel producer in China and 50% shareholder in GRR) is spending US$2.25 billion to takeover other steel mills in Henan province and modernising these steel mills and reducing pollution.
Iron ore pellets demand is increasing as Grange has already stated in the Dec 2020 quarterly that all 2021 production is pre-sold under agreements with an extra premium on top of the pellet premium. This proves the pellet desirability.
The margin between grades is widening substantially, as you can see from the latest Custeel the price of pellets is now nearly double 58% grade.
View attachment 3066739The mistake that many investors make with regards to iron ore miners is trying to compare Grange with the larger miners like BHP, RIO, FMG. These are huge miners and have huge production numbers but also have huge market caps. ie. FMG has a $62 billion market cap, poor Grange is just $560 million, FMG has quantity, GRR has quality.
Its the added pellet premium that produces the huge profits that Grange is currently making. Whilst the annual production is only 2.4 million tonnes the profit per tonne is now in the order of $200/tonne or $400 million + annually before tax. Shareholders do get the tax back via Franking credits. Its only overseas investors who don't get Franking Credit refunds.
Grange should be $1/share, even at $1 /share GRR would only be trading on a PE of 3.
Grange is currently the most profitable iron ore miner/tonne in Australia, ie. price received per tonne of ore produced. No other iron ore miner comes close.
Its the pellet premium that makes the difference.
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