With the United States electing new president Joe Biden, the super nation looks set to re-enter the Paris Agreement, which means Australian iron ore producers are experiencing increased demand for higher grade product. Salomae Haselgrove speaks with three junior companies about their place in this active market.
As Australia watched the election unfold from afar, the nation’s iron ore miners anticipated not only a surge in prices but also an increase in demand for high-grade iron ore, which is considered more environmentally friendly than its lower grade cousins.
During his campaign, Joe Biden stated his intent to restart the United States’ plan for a clean energy revolution and environmental justice, and the target of hitting zero net carbon emissions by 2050.
With the United States looking likely to re-enter the Paris Agreement under Biden’s leadership, mining companies and steel manufacturers are opening to sales agreements for lower-emission products.
This includes one of the world’s largest markets, China, which is facing stricter government regulations for more pure iron ore inputs.
For iron ore producers looking to reduce their emissions, mining a higher grade is the most productive fix, as higher-grade iron ore produces more steel from the furnace during blasting.
Higher-grade iron ore only requires crushing and screening so can be put to market quicker than lower-grade product.
It also attracts a higher price, giving producers more price resilience in the market, which is particularly attractive for juniors.
Australian iron ore producers were already enjoying prices of $US110 ($157.40) per tonne during 2020, as Brazil’s short supply forced markets to turn Down Under more than ever for the metal.
These prices have supported an ideal environment for juniors to bask in the opportunities of high prices and increased demand for their commodity.
One of these juniors is Strike Resources, which announced its Paulsen’s East project in Western Australia’s key iron ore region, the Pilbara, would enter production in 2021 after completing a project feasibility study.
Strike already had valuable experience mining iron ore at the Apurimac project in Peru.
The company has been active in the iron ore sector in Peru since 2008 via its 100 per cent holding of Peruvian company Apurimac Ferrum SA.
However, when COVID-19 halted the company’s progress at the South American site, its focus turned to developing Paulsen’s East, which is set up to produce six million tonnes of iron ore over an initial four-year mine life.
Back in the Pilbara, with the feasibility study complete, the native title agreement signed by the Puutu Kunti Kurrama and Pinikura (PKKP) traditional owners and iron ore prices on the rise, the timing came together to kick-start Paulsen’s East.
“As iron ore prices crept up, we could see the great potential we had for Paulsen’s East,” Strike Resources managing director William Johnson tells Australian Mining.
“The next step is for us to obtain mine permits from the Western Australian Government and other associated approvals with the hope to start mining early (in 2021) and targeting first production within the first half of 2021.”
In terms of the market, Strike is looking to the Chinese Government stimulus with wide eyes, as that stimulus is translating to demand for more steel, and therefore more iron ore.
Strike is engaging with several parties to advance sales opportunities with Chinese steel mills, global iron ore traders and other marketing groups.
The company plans to send lump and fines products to the interested parties for independent testing before finalising sales agreements.
One of the main characteristics of the Paulsen’s East project is that it is of higher grade then traditional iron ore projects, with its product having an average grade of 62 per cent iron.
With more customers being mindful of greening their supply chain, Johnson anticipates the demand for higher grade iron ore will continue to stay strong.
“The deposit Strike is looking to mine is extremely high grade and once crushed it will mostly become lump rather than fines, which attracts a premium price in the market,” Johnson explains.
“It is inevitable that the world is going to demand higher grade iron ore, especially following the United States election, as Biden has a much greener outlook than his predecessor.
“That’s the way the world is going, it does favour higher grade products and that works to Strike’s favour.”
Another company that understands the advantages of a high-grade iron ore deposit is Carpentaria Resources, which is answering the world’s call for high-grade iron ore products with its Hawsons project near Broken Hill, New South Wales.
The Hawsons project will extract iron ore concentrate with a grade of 70 per cent iron, which makes Carpentaria capable of producing the highest-grade iron ore product in the world.
With steel mills going through dramatic changes globally, Carpentaria managing director Quentin Hill says that the company is best placed to give the steel mills the premium product they need, and only the first movers will get the world’s best product.
“The shift to low carbon steel is real and growing, those with access to the highest quality ores will be a step ahead,” Hill explains.
“Globally, the incoming president has committed to get the United States back in the Paris Agreement, BHP announced it is forming a partnership with China (Baowu) to reduce emissions from steel and Vale and Mitsui are looking to partner on low carbon metallics.
“The trend over the past few years is that higher grade iron ore, 64 to 68 per cent iron concentrate has started to sell for a considerable premium, which is now entrenched”
The Hawsons project boasts a long-term orebody with a maiden probable reserve of 755 million tonnes near historical mining town, Broken Hill, which is surrounded by mining and rail infrastructure.
Hill says the key for iron ore juniors to attract development capital is having the right asset and providing the product the customers need, which is what Carpentaria is aiming to do with Hawsons.
“Hawsons is unique as a large-scale magnetite project, its soft ore and world’s best quality product sets it apart. The market is looking for these high product quality projects and good opportunities for steel mills and miners are very limited,” he says.
“Hawsons does stand out, being one of the few companies that has attractive returns at low iron ore prices. Wood Mackenzie places Hawsons as the leading high quality iron project of its type ahead of Fortescue’s Iron Bridge development, because of its low-cost structure and higher revenue from the highest quality product.”
Carpentaria is setting its sights on commercial success and has recently appointed a new chairman Bryan Granzien, former chief executive officer of Tata Steel Australia who brings important and necessary commercial and industry experience to the board improving the company’s prospects.
Granzien says he was attracted to the company because of the quality of the Hawsons asset and the demand for its Hawsons Supergrade product.
“The project meets the market and there are real opportunities to grow shareholder value,” Granzien says.
He inherits leadership of a company awaiting Foreign Investment Review Board (FIRB) approval for a transformational ownership transaction with joint venture partner Pure Metals, which owns the 30.2 per cent of the Hawsons project not owned by Carpentaria.
Assuming FIRB approval Carpentaria will own 94 per cent of the asset, setting an excellent platform to attract partners and capital.
Although high-grade iron ore is becoming more popular as markets look to manufacture greener steel, companies must strike while the iron (ore) is hot before the opportunity passes.
While there are still new high-grade iron ore deposits waiting to be unearthed, the industry is quite mature in Australia.
Fenix Resources has been an active explorer for high-grade iron ore deposits in Western Australia and is now transitioning to the title of producer.
The company has worked hard to set itself up not only as a miner but also preparing for exports, having purchased a share in Geraldton Port, the nearest port to its Mid West-based Iron Ridge project.
Without needing to construct port infrastructure, Fenix is set to dispatch its first shipment of high-grade iron ore during the first quarter of 2021.
The Iron Ridge project is also close to main highways, with sealed roads allowing travel to within three kilometres of its project, saving further valuable time and capital.
“What’s great about the Iron Ridge project is it’s of very low capital intensity and it’s very quick to market,” Fenix Resources managing director Rob Brierley says.
“We expect to be in production by the end of 2020, there’s a lot of activity on site at the moment and being fully permitted, with port infrastructure, with road transport ready, it’s all happening very quickly.”
The other advantage of higher-grade iron ore is that it is a softer material, it requires less processing and creates less wastage, significantly slashing the capital required to build the processing and tailings infrastructure at the mine.
In the case of Fenix, the ore being targeted at Iron Ridge is also close to the surface, meaning that the day the company begins mining the company will be extracting saleable ore.
With less processing infrastructure required to prepare high-grade iron ore for export, the Iron Ridge project could be mobilised within 12 to 18 weeks.
This is just as well. As high-grade iron ore operations may be in high demand, these mine types will have a shorter lifespan than lower-grade iron ore mines while new deposits become more difficult to unearth.
“Most traditional deposits historically run around the 62 per cent iron mark but Fenix’s Iron Ridge project has a mineral resource grading of 64.2 per cent and an ore reserve of 63.9 per cent, which are both very high grade by today’s standards,” Brierley explains.
“High-grade iron ore projects are an easy fix for customers to lower emissions and to make blast furnaces more productive, producing more steel from the furnace. But they are becoming increasingly rare deposits to find.
“This is why some of the major companies are actually under pressure at the moment, going for lower grades because their new deposits tend to be of lesser quality than their foundation assets.”
When the iron ore market settles after record highs during mid-2020, supply of lower-grade iron ore should match demand again, according to Brierley.
“When the market rebalances and goes back to matched supply and demand or even a slight over-supply, that’s when buyers will begin to favour high grades again,” he says.
“At the moment, the difference between a product that is 58 per cent iron versus 65 per cent is probably only $18 to $20 per tonne, but if you go back two or three years the discount between those two was almost $50.
“What Fenix likes about being a high-grade iron ore producer is the price resilience it gives us.
“There is no shortage of people buying our iron ore and with first sales coming in the first quarter then ongoing production and sales, we hope to feed into an iron ore price that stays buoyant for many years to come.”
This feature also appears in the February edition of Australian Mining.