Fortescue just destroyed the long term iron ore market

Via the AFR comes FMG’s new magnetite mine:

Iron Bridge would deliver a premium product with iron content of 67 per cent.

About 3000 workers will be required for the construction and there will be about 900 permanent jobs once the mine is in production.

The mine is expected to produce 22 million tonnes a year of 67 per cent iron magnetite concentrate by mid-2022.

That is going to land right on top of China’s worsening growth stagnation and building slowdown as Japanification transpires into the 2020s. Worse, given it will give FMG the chance to high grade and blend cheaply, that will keep it in business much longer than otherwise. How much of its substandard ore can be upgraded by this is difficult to tell given how technical the process can be chemically but even if the magnetite production remains discrete by subsiding the firm’s lower quality ores it will be in business longer.

Basically, by breaking with the implicit iron ore cartel supply constraints, FMG has guaranteed its survival much longer and in the process materially lowered future iron ore prices for as far as the eye can see.

Comments

      • Rio and BHP have both announced significant tonnage reductions this year from cyclone activity, amounting to a total of ~20 mt of hematite. This is why they are down in the market, especially since another cyclone is brewing with potential disruption next Tuesday – Wednesday.
        FMG has 5.4 bn tonnes of magnetite that it can upgrade from 30% to 67% iron. I have never seen any suggestion that the magnetite concentrate would be blended with hematite. Such a procedure would be messy from a metallurgical point of view and would likely be value destroying overall.
        At current pricing, FMG is spitting out ~US$9 bn of cash pa and ~US$6.8 bn pa of pre-tax cash flow from which about A$933 million of royalties would be deducted pa. The 20 mt pa that Iron Bridge will deliver post-2022 is effectively replacing lost tonnage from Brazil, so I don’t see any major disruption to the market.

        Magnetite con at 67% fe attracts about a 12% to 15% premium to the 62% marker price, so will get about US$100 per tonne currently, with project payback in under 3 years, delivering cash flow of ~US$1 bn pa, of which FMG has a 60.7% effective interest, but may earn marketing fees on top.

      • Thanks Peter. Better news if you;re right about no blending. That said, Vale volumes will come back and if the mag keeps hem alive then it’s still bad.

  1. GeordieMEMBER

    The Iron Bridge project will produce magnetite fines which are a separate product to their other materials which are haematite ore. The process used to beneficiate magnetite ore doesn’t work for haematite products, and I doubt they’ll blend magnetite with their haematite ores to increase their grade as the magnetite is worth considerably more given it is exothermic and reducing during steel production which is a considerable metallurgical benefit.

    What we’re seeing is a new FMG product brought to market that is more costly to process but worth more per tonne than their current ROM material.

  2. “given it is exothermic and reducing during steel production which is a considerable metallurgical benefit” –I guess yr not a metallurgist

  3. no shortage of this plurry magnetite eh? that cape lambert cluster has got decades of it.
    fmg not far from atlas magnetite project
    https://www.fmgl.com.au/docs/default-source/announcements/iron-bridge-project-approval.pdf?sfvrsn=8cdff6a3_4
    will the nearology gods smile and deliver more some where in between?
    http://www.atlasiron.com.au/site/our-business/Ridley-Magnetite-Project

    and the west murchison district is undeveloped. unsurprisingly given the dearth of infrastructure.
    eg; the byro station ore grades at +40%fe

    and apparently GRR pellets are going through at us$120+

  4. Good on you Peter. It is the demand from existing smelters and future build smelters that is of consideration. All Iron ore smelters have an inbuilt tolerance for inputs.Hence the old saying about part science part industrial art. Old style, hostile or dog style seems to by pass HnH in iron ore. The whole idea is to break the back of the Triumvirate of Vale BHP and RIO.

    • Vale were the ones who were supposed to bleed out FMG through expansion (BHP and Rio were stable), now that Vale’s tripped FMG have the chance they need to invest amid high prices.

  5. A few years back when the iron ore price was $180 a tonne, BHP and Rio had plans ready to massively expand output.
    I thought to myself … this is madness and greed. This will put downward pressure on the ore price and flog off a finite resource at an accelerated rate.
    My view is that natural resources like iron ore, gas should sold at the highest price for the smallest quantity possible, not this present ideology of maximum and increasing output at any low price to increase profits. If they want it, they can pay big for it.