Iron Ore Revival Puts Local Miners Back in the Black

Iron Ore Revival Puts Local Miners Back in the Black

At least least four Australian miners are cash-generative at current iron ore prices, thanks to a 23 per cent rise in the bulk commodity price over the past three weeks.

Another 5 per cent rally in the iron ore price late on Friday night capped a rare good week for the local industry, and pushed the benchmark price to $US57.81.

While BHP Billiton and Rio Tinto have easily remained profitable during the recent slump in iron ore prices, it is likely that few other local iron ore exporters were generating cash when the price hit $US47.08 on April 2.

But a weekly gain of 13 per cent means the iron ore price is now at six-week highs, and is believed to be above the "break-even" price for the world's fourth biggest producer, Fortescue Metals Group.

The estimation of break-even prices is fraught given the constantly changing factors involved, but Fortescue is believed to need iron ore prices to be about $US50 per tonne to cover its cost of production, royalties, maintenance spending and its debt obligations.

Fortescue mines at two locations in the Pilbara, with its newer Solomon hub the cheaper operation, while the company's original Chichester precinct is estimated by Deutsche to lose money at benchmark iron ore prices below $US50 per tonne.

The miner has already outlined plans to reduce its costs even further in the 2016 financial year, with a dramatic reduction in the amount of waste ore moved at the Chichester precinct set to drag break-even costs below $US45 per tonne.

The plan, in concert with last week's debt refinancing which pushed the company's next debt repayment back to 2019, should help Fortescue survive the lowest point for iron ore prices, which analysts at Deutsche and Credit Suisse expect to come in between the 2015 and 2017 calendar years.

But Deutsche analyst Paul Young recently opined that Fortescue's revised working plan in the Chichesters is not sustainable longer term, and is likely to be a viable approach for less than two years.

"The change in mine plan at the Chichesters is likely net present value destructive as it will likely shorten mine life and impact product quality," he said in a recent note.

The junior miner that relies on Fortescue to rail, ship and market its product to customers, BC Iron, is also likely to be profitable at the recently improved iron ore price.

According to BC's improved performance during the month of March, UBS believes the miner can be generating cash so long as the benchmark iron ore price is $US55 per tonne or higher.

Those close to break-even around these prices are believed to include Mt Gibson Iron, whose cost position has ironically improved since a wall failure at its Koolan Island mine, and US miner Cliffs Natural Resources, whose Koolyanobbing operation exports through the South Coast of WA.

US miner Cliffs Natural Resources will update investors on Wednesday morning Australian time when it publishes its March quarter results.

Gina Rinehart's Roy Hill project is not expected to start exporting until August or September, and is believed to have a break-even price between $US41 and $US51 per tonne.

Those needing a further improvement in prices include Arrium Limited and Atlas Iron, which ceased operating its mines just over two weeks ago.

While last week's improvement in iron ore prices has injected some hope into the local sector, the rising commodity price has come with some trade-offs.

The Australian dollar, which hurts local miners when it is high, has risen 3 per cent to US78.15¢ over the past two weeks.

Oil prices also appear to have found their bottom, prompting a slight rise in prices for some "bunker fuels", which are consumed by ships that carry commodities like iron ore.

Local miners will be hoping those factors don't continue rising and blunt the impact of improved iron ore prices.

Rio Tinto Goes Full Ore Ahead

Rio Tinto has revealed it shipped 72.5 million tonnes of iron ore from its Pilbara mines during the three months to March

CYCLONE season and a train derailment have slowed Rio Tinto’s iron ore business but the mining titan’s expansion plans remain firmly in place.

The Anglo-Australian miner has revealed it shipped 72.5 million tonnes of iron ore from its Pilbara mines during the three months to March.

The result, revealed in a production update on Tuesday, was 12 per cent lower than the previous quarter but 9 per cent higher than the same period a year earlier.

Rio produced 74.7 million tonnes of iron ore for the March quarter with the difference going into stockpiles.

Production was down 6 per cent on the previous quarter but up 12 per cent year-on-year.

The result missed market expectations but analysts were unfazed as Rio maintained its full-year production forecast at a record 350 million tonnes and said it would draw down on inventories to maximise cash flow throughout the year.

Rio said its operations had been impacted by tropical ­cyclone Olwyn, which battered the West Australian coast last month, and a train derailment that temporarily blocked ­access to Dampier port.

Smaller competitors such as Fortescue have been deeply critical of Rio and rival BHP Billiton for continuing to bring on new supply as the price of the key steelmaking ingredient tumbles.

Chief executive Sam Walsh said Rio’s push to milk as many low-cost tonnes from its iron ore business as possible was in the best interests of shareholders over the long term.

“By making best use of our high-quality assets, low cost base, and operating and commercial capability our aim is to protect our margins in the face of declining prices and maximise returns for shareholders throughout the cycle,” he said.

The price of iron ore rose 1.3 per cent to $US51.57 a tonne early on Tuesday after hitting a decade low of $US47.08 a tonne in early April.

Rio produced 144,000 tonnes of copper during the March quarter — a 9 per cent drop on the same time a year earlier due to mining lower grades.

Rio shares closed up 1.5 per cent on Tuesday at $55.50

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Atlas Iron Suspends Itself From Share Trade Amid Plunging Prices

Atlas Iron is stumbling in the face of the slumping ore price, suspending itself from the local share market as it tries to map out a future.

Iron ore slumped over the weekend to a fresh low of $US46.70 a tonne on a key Chinese spot market.
Atlas said it has been surprised by the "extent and the pace of the decline in the iron ore price" which it says has fallen 24 per cent since it released its half-year accounts in February.

"The voluntary suspension is requested pending the outcome of an extensive review of the company's operations, financial outlook, asset sale opportunities and capital structure," the company said in a statement to shareholders.

The company said it has already commenced discussions with a number of its stakeholders in relation to various initiatives it is undertaking to reduce costs and preserve value.
Bulk transporter McAleese Group is one of those stakeholders, it has a major iron ore haulage contract with Atlas worth around $250 million and not due to expire until 2017.

McAleese has issued a statement to shareholders saying it will continue to work with Atlas as a priority to "achieve sustainable solutions for both parties."

Atlas shares, which last traded at 12 cents, will remain suspended until the company makes an announcement at the end of the review, which should be in the next fortnight.

The share price has lost 88 per cent in the last 12 months.

Financial advisory and asset management firm Lazard is assisting Atlas with the review.

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