More on the declining fortunes of Australia’s iron ore billionaires today. Gina Rinehart is basking in the glow of the last great iron ore boom:
Roy Hill, in Western Australia’s Pilbara region and majority-owned by Mrs Rinehart’s Hancock Prospecting, on Friday will announce a $4.4bn net profit for the year to June 30, double the $2.2bn it made last year.
The mine exports about 60 million tonnes of iron ore annually, and profits were boosted by surging iron ore prices during the 2021 financial year and a close focus on controlling costs across the business.
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…so well has Roy Hill performed that it paid off its entire $US7.2bn in debt within five years of sending its first shipment of iron ore to its customers in Asia in December 2015.
It also has received approval to increase iron ore shipments to 70 million tonnes a year.
Combined with the recent purchase of magnetite ore projects, Gina is preparing to lift Hancock grades:
“The Mt Bevan project is an excellent opportunity for Hancock to further grow its portfolio in the iron ore business with higher grade, lower impurity iron ore products,” Hancock CEO Gary Korte said, acknowledging the role of grade in the deal.
“We look forward to working with the JV partners Legacy and Hawthorn to undertake the work programs and studies necessary to support a final investment decision.”
Good luck with that. As China goes ex-growth, higher grades won’t save anybody.
Chris Ellison’s Mineral Resscourse is also on the move:
Ellison conceded that the operation was very close to being in the red at current iron ore prices.
But his second message was one of defiance. Not only is he prepared to run his iron ore mines at a loss, but he’s pushing ahead with his plans to develop the Ashburton hub, a 30 million-tonne iron ore mine and port project which, if all goes to plan, could send its first load of iron ore in calendar 2023.
…Ellison is not alone in thinking iron ore prices can consolidate around $US100 a tonne, a price that would still mean very healthy margins for Australia’s iron ore giants, and handy ones for smaller players such as Mineral Resources.
Veteran mining analyst Glyn Lawcock, who jumped ship from UBS to Barrenjoey earlier this year, has finally opened the batting at his new shop by initiating coverage on Rio Tinto and BHP.
…Lawcock concedes that the outlook for Chinese GDP, which has fallen from a staggering rate of 18.3 per cent in the March quarter to just 4.9 per cent in the September quarter, isn’t good.
But Lawcock sees the case for a rebound next year. Once the traditional winter slowdown is past, and China gets past the Winter Olympics in Beijing in February, he believes steel production is likely to lift to an annualised rate above 1 billion tonnes.
“Overall, our base case sees China property steel demand down 8 per cent in 2022 given continued weakness in China housing activity, while infrastructure and other industrial production records modest growth of about 2 per ent,” he says, noting that car making should be a bright spot, with steel demand from the sector jumping 8 per cent as automotive industry supply chains finally get sorted out.
It’s amusing to watch. Even if Lawcock is right and Chinese production rebounds by that much, which is doubtful, it would constitute Chinese steel output a little above 2019 levels. Since then, 50-60mt tonnes more iron ore has been added to the market by Vale and Pilbara miners with another 50-60mt coming and Ellison plus Gina want to add more, plus Simandou etc…
Then there is the specter of what happens beyond any rebound in 2022 for Chinese construction. Another round of consolidation is inevitable. The rise of scrap is inevitable. Even if Chinese pig iron output falls at only 3% per annum from here, by 2030 some half a billion tonnes of iron ore demand is gone from seaborne markets:
These guys should be diversifying their arses off not digging more holes. Yet even that comes with its problems:
In a full-page advert in The Australia Financial Review on Thursday, the Bob Brown Foundation slammed Dr Forrest’s $100 billion plan to build a huge dam on the Congo River, in Central Africa, threatening “rainforests, wildlife and the homes of thousands of people”, as well as dams in Papua New Guinea, and a wind farm in Tasmania that threatens “Aboriginal sites, Tasmania devils and rare migratory birds”.
Dr Brown said his “ears first pricked up” when he heard Dr Forrest had signed an agreement with the president of the Democratic Republic of Congo to dam the world’s second biggest river and the prime minister of PNG to produce power to electrolyse water into hydrogen.
“I doubt Dr Forrest has taken the time to speak to the 25,000 people on the Congo at risk of displacement, or those on the Purari river in PNG,” he said.
Dr Brown said there was also growing evidence that large dams were huge generators of greenhouse gases such as methane, which comes from the rotting of drowned forests and peats.
He said the federal government should establish an independent commission into hydrogen as a future fuel, given it requires massive amounts of energy, and said he would happily debate Dr Forrest in public.
Quite right though at least Dr Forrest is pursuing green hydrogen. The blue version that the Morrison Government is keen on at the behest of the east coast gas cartel is a disaster given it relies upon unworkable CCS.