In its Q3 production update, Arrium announced this morning:
Record shipments of 3.45Mt (dmt), up 0.29Mt on prior quarter
Sales of 3.29Mt (dmt), down 0.03Mt on prior quarter
Achieved targeted annualised sales rate of 13Mtpa
Average Platts market index price (62% Fe CFR) US$90/dmt, down US$12/dmt on prior quarter
Average realised price ~US$73/t CFR (dmt), down US$12/t on prior quarter
Average realised price ~A$78/t CFR (dmt), down A$14/t on prior quarter
Average grade of shipments 59.9% Fe, average for prior quarter 59.6% Fe
Average cash cost loaded on ship A$45.6/wmt1 , down from A$45.9/wmt1 in prior quarter and A$49/wmt in prior corresponding period
Total cash cost A$68.4/dmt2, down from ~A$73/dmt2average for the prior year
Add in capital costs and it’s very line ball that it is making money on iron ore. Arrium needs a breakup strategy.
Meanwhile, on Friday night, Cliffs was smashed:
Cliffs Natural Resources Inc said it would write down the value of its coaland iron ore assets by $6 billion due to weak prices, putting it in breach of debt covenants and sending its shares down as much as 6.8 percent.
Cliffs said the non-cash charge would increase its debt-to-capital ratio over the 45 percent threshold set by its credit facility, and it was working with bankers to amend the covenant.
“… We believe this will result in higher interest rate on revolver borrowings going forward,” FBR Capital Markets analysts wrote in a note.
…”It essentially confirms … that the vast bulk of the company’s investments in the last decade prior to the appointment of new CEO Lourenco Goncalves was misspent,” BMO Capital Markets analyst Tony Robson wrote in a note.
…FBR Capital Markets said it believed the biggest contributor to the writedown would be the Eastern Canadian iron ore business
, including its Bloom Lake iron ore mine in Quebec.
…“The company is likely to continue to face difficult times given depressed bulk commodity prices,” Robson said. “Much will rest on how successful –- or not — Mr. Goncalves is in selling assets and reducing debt.”
Presumably the Australian assets weren’t written down given they’re the great hope for selling, even if they’re worthless given production costs above $100/t. Any buyer will surely await the inevitable anyway…
Glencore is also in the news:
Glencore’s massive iron ore deposits in Africa are understood to be among the mounting pile of project hopefuls across the globe…it is known to be running feasibility studies on two iron ore projects – headlined by Zanaga…an initial 14 million tonnes per annum development…
Also under feasibility study is Glencore’s Askaf project in Mauritania, which has annual production potential of 7.5 million tonnes a year, but a capex estimate is yet to be finalised.
The trading giant’s third key iron ore holding in Africa – Guleb El Aouj, also in Mauritania – has a resource put at almost 4 billion tonnes. A pre-feasibility study on the project, in which Glencore has a 44 per cent interest, is being conducted for 15 million tonnes a year, and the first stage of development is near completion.
…UBS analyst Dan Morgan said that “once built, these projects require about $US60-$US90 per tonne to break even”.
That’s a huge range but let’s face it, getting capital for these projects amid the glut and ebola is impossible. Glencore’s expansions look to be toast until the next cycle.
The hanging-on simply ensures there is much more pain to come!
