iron ore prices, page-2

This is no surprise, I said this in November, or even earlier. Look at the coking coal price last week - down 60%. Cok + iorn ore = steel. We may not see such a huge (~50%) cut in ore prices this year because the coke price has gone down so dramatically (hence, making steel about 20% cheaper to produce) but we will definitely see it go down.

Now. The question is this. If you consider a 50% cut in prices within 2 years on the Port hedland Fines Price this values Aurox's dirt at AU$54/t give or take. If they can produce it for AU$35/t, then the project will stand on its own two feet.

However, the complication here is the titaniferous, vanadiferous magnetite and the need to sell it to the specialist blast furnaces. This then becomes a question of whether the smelters can extract enough from the magnetite in terms of saleable products (FE$ + V$ + Ti$) to counter the Fe price and coke prices (plus other reagents).

If you buy for A$54/t of contained Fe, and have to spend $120/t of ore to smelt it with coke, you need steel prices to stay above A$250/t. Also, you need to have vanadium and titanium prices remain competitive.

For instance, current FeV is US$29,000/t so you'd expect them to recover 95% of the vanadium in AXO's ore to produce (lets say) a ferrovanadium product so they'd be selling 9.5kg/t of FeV or about 95,000t per annum. That's $2.7B of revenue before costs - so one may assume that if Chengde and RockCheck could sell what amounts to 30% of the world's vanadium into what is for the moment a woefully deressed ferrovanadium market, they'd make a pretty penny.

Lets go with $250/t for the steel, of which they'd get 5.4Mtpa between Chengde and Rockcheck = $1.35Bn
FeV = $2.7Bn
Titanium = Who cares
Minus costs of 8Mt coke ($1Bn)
Minus 10Mt ore ($540M)
leaves you with around $1.5Bn of revenue for RockCheck and Chengde.

However, this assumes they don't kill the FeV market.

But, consider the previous prices where it would cost them A$78/t for the AXO dirt, and $300/t for the coke; costs were $3.18Bn per annum and revenues with steel at $300/t and FeV at $60/kg = $7Bn.

So, in the end, it comes down to whether the smelters reckon the outlay for supporting a $1Bn mine is worth it to get their hands on $1.5Bn per annum NOW, versus $4Bn prior to the GFC rooting everything up.

Its still profitable for them to do it as long as FeV can stick in at $29,000/t.

Problem for AXO holders is, if the Chinese bankroll it, then AXO holders will probably find themselves diluted out substantially.