Chinese customers may be reluctant to deal with the BHP-Rio Tinto iron ore joint venture, and that could have been a factor in Atlas Iron’s $116.7 million fundraising, Fat Prophets’ head of mining and resources research Gavin Wendt told MINING DAILY.
“Interest in the market has been heightened by the anticipation that the Chinese will want to deal increasingly with these smaller companies,” Wendt said.
“Atlas Iron was always going to be one of the players who were going to succeed in that iron ore space.”
Atlas Iron managing director David Flanagan denies the joint venture was a factor, telling MINING DAILY that the fundraising was initiated the day before BHP-Rio merger was announced.
“So we were either really lucky or really unlucky, because we ended up with a mountain of demand,” he said.
“It was like trying to shove an elephant down a drainpipe.”
According to Flanagan, China has always wanted to expand its iron ore supply base and the joint venture has not changed that.
“They have always wanted to diversify the supply line of iron ore,” he said.
“Now, looking at the joint venture between Rio and BHP, they will want it more than ever.”
Atlas yesterday announced that it plans to raise $116.7 million in order to expand its Pardoo mine and start production at the Wodgina and Abydos operations in Western Australia’s Pilbara region.
Production at Pardoo began in December last year, while Flanagan expects both Wodgina and Abydos to come on line by the end of next year.
The company’s goal is to produce 12 million tonnes per annum by 2012.
According to Flanagan, much of the Atlas Iron’s production will go towards offsetting domestic Chinese iron ore production, which is more expensive and of a lower grade than what is mined in the Pilbara.
“Domestically, their cost of production is getting higher every year, and the grade of their ore is getting lower,” he said.
“It is just natural that they would go to fulfil their deficit from off shore.”
This is where Atlas Iron and other Australian iron ore producers can step in and export to China, Flanagan said.
“Companies like Atlas can help them and that is why we should have a big partnership with China,” he said.
“We are mad if don’t consider them in our plans of the future.”
Regardless of any increase in demand for the smaller companies such as Atlas, or any reluctance to deal with a newly created iron ore entity, Flanagan believes that Chinese customers will ultimately have no choice but to import from BHP-Rio Tinto.
“The Chinese have to deal with them because they will basically supply more ore than anyone else,” he said.
“Unfortunately the majors will still control 90% of sea-borne iron ore exports.”