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Iron Ore Miners Revitalizing
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Iron Ore Miners Revitalizing
After riding the highest of highs and lowest of lows in 2021, several developing producers were able to recommence mining activities in 2022 thanks to a first-quarter improvement.
As if labor shortages and border restrictions weren't bad enough for the Australian mining industry in 2021, the iron ore pricing chose to play with major and small iron ore miners. And while prices peaked at $US230 ($294) per ton in May, then plummeted to $US180 before climbing beyond $US200 again in June and July, it was all too good to be true.
China's steel output curbs have created havoc on Australia-China ties, but economists have convinced investors and miners that the tides will change and iron ore prices will return to normal.
But, once iron ore prices caught up with the steel production freeze, they plummeted by more than half in less than two months. From July to September, the going rate was lowered by more than $US130 a ton, bringing several of Australia's booming iron ore miners to an unsustainable halt.
By mid-November 2021, the iron ore price had plummeted to the low $80s per ton, and mining companies such as GWR Group, CuFe, Venture Minerals, Indus Mining, and Mount Gibson had all suspended operations due to poor iron ore pricing.
Nonetheless, not all was doom and gloom for some; GWR chairman Gary Lyons hinted in September that his company was well placed to weather the pricing slump in Australia's main export.
"While mining operations at the C4 iron ore mine have temporarily ended, it is important to highlight that GWR remains in a strong position to resume operations because the mine will be left in a production-ready state in order to take advantage of a recovery in iron ore prices," Lyons stated at the time. They were able to outlast them. The iron ore price had been above $US100 per ton for more than three weeks at the start of the new year and showed no signs of slowing down.
GWR was able to resume mining operations at C4 the week of January 10, citing more viable iron ore prices, while haulage and sales had proceeded over the holiday period. While Lyons claims he was optimistic about seeing this result in September, he acknowledges he is grateful it went out well.
Lyons tells Australian Resources & Investment, "There was certainly no expectation on my part, so you'd have to say the sense is more of a relief that we were able to restart operations again."
GWR chairman Gary
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"However, despite the fact that we'd stopped mining, we hadn't stopped transferring product." We had a stockpile, and we've continued to sell and transport goods to the port."
GWR's publicly disclosed sales as of this writing include one cargo in March for $US110 per ton, with preceding shipments in January and February selling for $US100 and $US95 per ton, respectively.
Lyons also says that the $US111 prices he secured for shipments in the second quarter of 2022 are satisfactory. "I can't forecast beyond the first half of the year," he continues, "but I can say that I've presold the majority of our merchandise through the end of June."
"That was at a fixed price and FOB (free on board) since I didn't want to be exposed to the volatility of shipping prices."
Not only does the price of iron ore and shipping fluctuate, but so do currency exchange rates. I simply hedged our bets wherever I could in order to know exactly how much we'll be banking." This is the approach Lyons believes anyone in his position should use in a time when the following quarter is mainly uncertain. Of course, humbly, he claims that he feels obligated to make reasonable earnings for the people on the ground.
"I'm not sure I've done anything particularly clever or clever," Lyons says, "but when it comes to our shareholders and the many mothers and fathers out there, security is critical, and it's critical we're able to continue mining operations while delivering product with some sort of margin."
With a 750-kilometer trip to the Port of Geraldton for the stockpile, GWR's C4 iron ore mine is significantly more
vulnerable to declines in iron ore prices than most. As a result, Lyons declares that safety and security are his top priorities.
"We'll always be the last to start mining and the first to cease, just because of the costs associated with logistics from mine to port," he explains.
"Any price shift makes us very sensitive, and as I usually say, 'a sparrow in the hand is better than an eagle on the roof,' so I'm always focused on maintaining margins." This is in line with Wood Mackenzie senior analyst Kim Christie's projections, which remain upbeat for miners like GWR. "Small mines are often higher-cost operations, so these operators will remain cautious about their price expectations, especially as 2022 approaches," Christie adds.
"However, even at $US90 per ton, most producers will be making excellent margins, so we believe 2022 will be a good and profitable time for most Australian iron ore miners." Lyons says he intends to run with this projection – at a responsible pace, of course. "I haven't locked it away yet since we still have more iron ore to sell." "However, if the iron ore price rises again, I'll attempt to take advantage of it and hedge out even more," Lyons finishes.
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