I think plenty are underestimating how much higher grade iron ores are going to be valued over the lower grades in the coming years.The US and EU trade deal on steel and aluminium is huge. They’re planning on cutting dirty Chinese steel from both markets, with Japan and the UK looking at getting involved. Two thirds of American steel comes from recycled product, while the primary production across Europe is through blast furnaces and secondarily through EAF. With Europe leading the charge with the green movement, research and development will come quickly enough. China meanwhile has plans to massively increase their steel production through scrap steel, but will the product be considered green with how much of the Chinese power grid relies on coal? Any increase in recycling scrap steel is great for the environment, but it’s costly. Higher steel prices also raises the price for scrap steel material feeds. Add the labour costs of isolating the scrap on top of this. All steel isn’t built the same, will the world be able to provide enough scrap of the right variety to produce all the different types of steel used in the world today?
World wide carbon taxes are coming, without a doubt. They’re also going to increase at each stage of manufacturing, from the raw material to the final product. The question is who will foot the bill? Any increase in cost to a raw material producer will have to be recouped, this naturally increases the cost of the product. There’s also talk of producers paying for down the line costs of their products. An inferior raw material which creates more pollution through it’s use, will cost the initial producer more. This then leads to lower grade ores requiring benefication to compete with higher grades. Benefication isn’t cheap, as we already know. It’s also harder (costly) to do with hematite ores and there’s a loss of product. The output of a mine is also then controlled by how much ore their benefication process can produce.
Both the costs of scrap steel feed and low grade iron ore are going to increase world wide, for differing yet related reasons. Global steel markets are changing and the world is moving green. What MGT have is a huge resource capable of producing high grade product, powered by green energy in a world wide leading state of renewable energy. That’s what matters.
We haven’t even begun to see what comes from the green hydrogen movement and what it means for Australia. The potential for our country to produce the worlds cleanest steel could only be a decade away. A future where our steel is made without the additional costs of shipping raw material and the whole nation benefits sounds good to me. The only way for Australia to compete in a modern world governed by the principles of the green movement is through renewable energy. Just so happens we’re the country best suited on Earth to make it all happen.
The current share price of everything iron ore related has taken a hit. Are there better investments around currently? 100%. Should you have all your eggs in this one basket? No. Will MGT’s share price dramatically increase in the next 6 months? Probably not but opportunities for an increase do exist. Iron ore hit an all time high this year under crazy circumstances. It’s now found a new, much lower price under equally crazy circumstances. 2024 Q4 is a long time away. The world is moving in a direction that favours what MGT plan to create. Everything here applies for all Australian magnetite projects. Hopefully they all succeed because it’s what both our country and world need. Tribalism between shareholders of different companies is ridiculous and there’s plenty of better things in life to spend your energy on. This is a high risk, high reward investment. Yet it’s also grounded in the logic that what we want to create is going to be required in a future dependent on reducing the effects of climate change.
Personally I’ll continue to increase my holdings along side my other investments. The current price is only slightly above my average and there’s plenty of opportunity for management to create value over the coming year.
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