Iron ore miners bounce back

Iron ore miners bouncing back

Iron ore prices reached a three-month high in January.

After the iron ore price rode the highest of highs and lowest of lows in 2021, a first quarter recovery has allowed some emerging producers to restart mining operations in 2022.

As if issues of labour shortages and border restrictions weren’t enough of a burden on the Australian mining industry in 2021, the iron ore price decided to have its fun with iron ore miners big and small.

And while record prices above the $US230 ($294) per tonne mark were seen in May – before diving to $US180 and rising above $US200 again from June through July – it was a case of too good to be true.

Chinese restrictions on steel production wreaked havoc on Australia-China relations, but analysts assured investors and miners alike that the tides would turn and iron ore prices would settle back to usual proceedings.

But a mountainous dive was to come, as iron ore prices caught up with the curb in steel production and more than halved in the space of two months.

From July to September, more than $US130 per tonne was slashed from the going rate and several of Australia’s burgeoning iron ore producers were brought to unfeasible standstills.

By mid-November 2021, a secondary dive saw the iron ore price bottom out in the low $80s per tonne and the likes of GWR Group, CuFe, Venture Minerals, Indus Mining and Mount Gibson had all halted mining operations citing iron ore prices.

But it wasn’t all doom and gloom for some, as GWR chairman Gary Lyons foreshadowed in September his company was well prepared to outlast the pricing lull in Australia’s top export.

“Whilst it is disappointing that mining operations have temporarily ceased at the C4 iron ore mine, it is important to note GWR remains in a strong position to resume operation as the mine will be left in a production-ready state in order to take advantage of a recovery in iron ore prices,” Lyons said at the time.

And outlast they did. By the turn of the new year, the iron ore price had been above $US100 per tonne for more than three weeks and showed few signs of slowing down.

Come the week of January 10, GWR was able to recommence mining operations at C4 citing more feasible iron ore prices, while haulage and sales had continued over the holiday period.

By the turn of the new year, the iron ore price had been above $US100 per tonne for more than three weeks and showed few signs of slowing down.

While Lyons says he was optimistic in September about seeing this result, he admits to being thankful it turned out for the best.

“There was certainly no expectation on my part, so you’d have to say the feeling is more so one of relief that we were able to start operations again,” Lyons tells Australian Resources & Investment.

“However, although we’d ceased mining activities, we hadn’t stopped moving product. We had a stockpile and we’ve continued to make some sales and haul some product to the port.”

At time of writing, GWR’s publicly announced sales include one March shipment for $US110 per tonne, while previous shipments in January and February sold for $US100 and $US95 per tonne, respectively.

Additionally, Lyons confirms he is more than happy with prices he also secured for shipments in the second quarter of 2022 at $US111.

“I can’t predict beyond the first half the year, but what I can say is I’ve presold most of our product to the end of June,” he says.

“That was at a fixed price and on an FOB (free on board) basis simply because of the fluctuations in shipping costs and I didn’t want to be exposed to that volatility.

“The volatility is not only in iron ore price and shipping but also in currency exchanges. I just hedged our bets wherever I possibly could to know exactly what we’re going to be banking.”

This underpins the strategy Lyons believes anyone should be taking in his position, in a time where the next quarter is largely unpredictable.

Humbly, of course, he says it’s all for the people on the ground that he feels responsible to turn respectable profits.

“I’m not sure I’ve done anything too clever or smart, but when we’re considering our shareholders and the many mums and dads out there, security is key and it’s critical we’re able to continue mining operations while delivering product with some sort of margin,” Lyons says.

In the case of GWR’s C4 iron ore mine, with a 750 kilometre drive to the Port of Geraldton for stockpiling, the operation is far more susceptible than most to falls in iron ore price.

For this reason, Lyons says his primary objective is safety and security.

“We’re always going to be the last to commence mining and the first to stop, simply because of costs associated particularly with logistics from mine to port,” he says.

“We’re very sensitive to any price movement and I always say, ‘a sparrow in the hand is better than the eagle sitting on the roof,’ so I’m always very focussed on protecting margins.”

This aligns with forecasts from Wood Mackenzie senior analyst Kim Christie, who remains optimistic for miners like GWR.

“Small mines tend to be highercost operations, so these operators will remain cautious in regard to their outlook for prices, particularly as 2022 progresses,” Christie says.

“Having said that, even at $US90 per tonne most will be making decent margins so we think that 2022 will still be a positive year for most Australian iron ore producers.”

Lyons says he plans to take this forecast and run with it – at a responsible pace, of course.

“We still have more iron ore to sell, I haven’t locked everything away. But if we see another rise in iron ore price then I’ll be looking to take advantage of that and hedge out even further,” Lyons concludes.

GWR Group’s C4 iron ore mine in WA.

C4 operations have recommenced as iron ore prices stabilise.