You make a good point Coldwarkid, there is a disconnect between the price of IO and HIO’s share price created by years of great promise but inaction. But this may work in our favour because after what's happening in China there could be a 200 million ton steel demand reduction which equates to 300 million tonnes of seaborn ore. So, and I hate to say it, after studying the impact of the latest momentous, rapidly evolving events, realistically, the price of IO could easily halve from where it is now and possibly stay there for a year or two.
But it will surely firm again as it seems inevitable that infrastructure stimulus created in part by these tumultuous events on top of COVID, potential deleveraging caused by inflation, the green energy revolution* and supply disruption will be needed on a massive scale worldwide. Because now the dust is settling on the real situation, post the Evergrande slow motion collapse, and it’s an ugly picture, it appears the property PonXi scheme powering China’s growth is both unsalvageable and unwinding, even by the mighty CCP who won't act on principle as they don’t want all the country's wealth tied up in real estate. And their newly found ideology is fierce, demonstrated by wanting to sever their reliance on Aust raw materials to boot, no matter what the cost. And no cost is too high, as you can see in the CCP created power crisis, despite it growing into an economic typhoon that is now sucking life out of its economy they madly reopen both old and new mines, creating way more of the pollution they gave as an excuse for shutting down Aust imports, and because of their aggression, igniting world demand for anything not made in China. Ideology gone mad, and that has never ended well in world history.
So to me it now seems inevitable that there will be a dip in both IO demand and prices. However I also believe that once the ore body is proven HIO will be re-rated from black swan status to golden goose. Resource stocks are generally priced on future potential rather than the actual commodity price at the time and the highest quality ore will be in high demand so that even at $50 IO HIO’s product will easily still command ~A$130 and that still means billion dollar profits and a therefore a woefully mispriced share no matter what .
*I digress but green energy is now producing stored power at even lower prices than nuclear and hydro, in fact the cheapest form of power in history, leaving all types of fossil fuels as a dead men walking despite the current peaks. The reason is that fossil fuel, hydro and nuclear must operate 24/7 or reduce production at times as prices are now going negative for many hours a day, destroying their economics. This means that a coal or gas fired plant, as an example, can no longer even recoup fuel costs let alone capital or operational costs. That means that 8 cents per kW power from a coal fired power plant just a few years ago is now closer to 16 cents or worse vs solar with batteries at 6 cents because they were at 100% capacity but now 70% and now falling off a cliff whilst wholesale prices are comming down. So trillions of dollars of fossil fuel assets are effectively worth nothing and the recent surge in gas and oil prices is just a last gasp, hastening their own demise…. Don’t believe it? Well just check out how all the billion dollar fossil fuel power stations in Australia were quietly written down to zero in the blink of an eye in the last 12 months and that has happened globally. Waiting lists for new petrol cars are negligible yet many electric vehicles (incredibly there are over 400 Chinese EV manufacturers) have waiting lists ranging from 10's of thousands to millions. The massive electrification of transport (including mining equipment) and industry that will shuck off anything fossil fuel powered to tap into cheap green energy has just started but will sweep all before it, including the wealth of investors who don't get on it or at least out of its way. This pardigm shift will both directly and indirectly need green steel and plenty of it.
HIO Price at posting:
7.9¢ Sentiment: Buy Disclosure: Held
