March 15, 2013, 2:40 PM Mineral Resources Prioritizes Port Access over Mining Unit Sale
By Stephen Bell
Mineral Resources Ltd. MIN.AU +0.49%is focusing more on port access in Western Australia than the wobbly iron ore price as it calculates when would be the right time to sell its mining business.
Perth-based Mineral Resources is something of an oddity among mid-cap companies seeking to capitalize on Asian demand for raw materials like steel because it is an engineering contractor for major operators in Western Australia’s Pilbara region at the same time as competing with them to sell iron ore.
Managing Director Peter Wade said separating the two units is on the agenda, but securing more capacity at crowded ports takes priority. Management are currently in talks with authorities at Port Hedland, Fremantle and Esperance about gaining more space for iron ore exports.
Reuters A tipper truck operates at Fortescue Metals’s Cloudbreak iron ore mine, about 250km (155 miles) southeast of Port Hedland in Western Australia state. Mineral Resources, worth 1.92 billion Australian dollars (US$1.99 billion, expects to export around 6 million tons of iron ore in the year to June 30 through Port Hedland in the Pilbara and Fremantle’s Kwinana terminal further south. That would represent a 50% increase on exports a year earlier.
Increasing its allocations would enable the company to make better use of existing infrastructure at its mines, and possibly push up the value of its production arm before management formally put it up for sale.
“Once we get certain things agreed and we know they are going to take place, then that’s the appropriate time to be more formal in terms of trying to arrange a spin-off, or to monetize it whichever way is appropriate,” he said.
Mineral Resources regards itself as mostly a services company, carrying out construction and engineering work for clients such as Fortescue Metals Group Ltd. FMG.AU +1.26%, Mr. Wade said.
The mining side of the company, built up over several years through acquisitions, was “opportunistic in the sense that the mining cycle was in an upswing, and is still very strong in terms of commodity prices,” he said.
“At the proper time, when we can get an appropriate valuation for any of the commodity operations, we’d certainly be looking at monetizing those, by divesting them through a trade sale, through a listing, or some joint venture structure with other companies,” Mr. Wade added.
“Do I think it’s going to occur in the next six months – probably not,” he said. “But we are very conscious also of mining cycles.”
Spot iron ore prices traded at a 16-month high of $US158.90 a ton in February, nearly double lows reached in September. However, spot prices have recently retreated to the low-$130s level and many analysts are tipping further weakness as more supply comes online this year.
Mr. Wade expects prices to settle back at an average of “around $120 a ton, for at least the next 18 months at least”.
Mineral Resources has spare capacity at its mines, but is constrained by port access at both Port Hedland and Kwinana.
“We are in negotiations with the Fremantle Ports Authority to see what else may be achieved out of that port (Kwinana),” he said. Esperance, on the south coast, remains the preferred export route for its Carina mine should the Western Australian Government go ahead with a mooted expansion.
In the Pilbara, meanwhile, Mineral Resources exports iron ore and manganese from the common-user Utah Point facility, where the Port Hedland Port Authority is looking at how it might optimize capacity.
“We’re talking with them about what tons we might be able to achieve,” Mr. Wade said.
Mineral Resources is ramping up its new Phil’s Creek mine, and last month struck a deal with Iron Ore Holdings Ltd. IOH.AU 0.00%to buy a minimum annual tonnage of ore from its Iron Valley project.
Due to begin production by early 2014, Iron Valley will be built and operated by Mineral Resources, which plans to truck the ore roughly 300 kilometers to Utah Point.
Mineral Resources believes the Iron Valley mine can be built for less than A$60 million, Mr. Wade said.
(20min delay)