Arrium producing loss-making iron ore

Iron ore miner Arrium sold the commodity at close to a $9 loss per tonne during the first quarter.

The company’s March quarter production report showed its total cash cost per tonne was $66.90, but the group's average realised sales price was just $58 a tonne.

A major shake-up earlier this year saw Arrium mothball is Southern Mining operation.

The company announced it was redesigning its South Australian based mining operation to provide sustainable cash flow in light of falling iron ore prices.

As part of the plan, Arrium said it would focus on its lower cost Middleback Ranges operation and close the Southern Iron mine complex.

Southern Iron incorporates the Peculiar Knob project as well as the Buzzard and Tui DSO hematite and magnetite deposits.

The company also said it will be recording an asset impairment charge of $1.3 billion. This includes an impairment of $1.7 billion in the company primarily related to the impact of low iron ore prices and the mothballing of Southern Iron, and $130 million in steel and recycling.

However since January, the price of iron ore has fallen by close to 30 per cent, causing more pain for the miner.

Arrium said given the further decline in iron ore prices since the mining business re-design changes were announced in January, further work is underway to identify volume/grade/cost options to optimise the Middleback Ranges operations in the current price environment.

This has prompted some analysts to ask why Arrium are still mining.

Allan Gray portfolio manager Simon Mawhinney said companies that operate mines at the high end of the cost curve “must continually ask if it makes economic sense to keep the mines open”.

During the quarter, hematite ore mined for export in the Middleback Ranges was 2,387k (wmt) for the quarter, down 17 per cent on the prior quarter.

Ore mined at Peculiar Knob in the Southern Iron operation supported contractual commitments with customers. The volume mined of 1,235k (wmt) was down 9 per cent compared to the prior quarter.

Total ore shipments for the quarter were at 3,064k (dmt), in line with guidance of 5Mt for the half.

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