Price penalties no deterrent to MinRes plans
Price penalties no deterrent to MinRes plans - Financial Review, 10/27/2021
Savage price penalties on lower grade iron ore have slashed the profitability of Australian miners and reduced the…
On October 27, Mineral Resources, Australia’s fifth-biggest iron ore exporter by volume, was slashed by the savage price penalties on lower grade iron ore. On Monday, the “benchmark” price for ore with 62% iron was $US119.75 per tonne and the 58% iron was $US77 per tonne. The increased supply of similar material and the preference for high-grade iron ore, which enables the use of less expensive coking coal, contributed to a slump in the price of lower-grade iron ore. As a result, shares in Mineral Resources dropped by 7% to $39.95 yesterday.
Mineral Resources has two operations in Western Australia’s Pilbara and Yilgarn regions in its iron ore division. The Pilbara division had unit costs of $99 per wet tonne, including shipping in the year to June. In Q3, the surging shipping costs and the fuel costs soared caused the higher unit costs of ore, driven by the shortage of vessels due to the pandemic and geopolitical tensions. The cost of carrying iron ore from Port Hedland to China was $US23 per tonne early in October, while it was $US7.70 per tonne in 2019 and $US13.55 per tonne on Monday.
In July, Mineral Resources spent $200 million on the Australian Premium Iron project in the West Pilbara after buying Aurizon in June. The project has lain dormant since Chinese steel giant Baowu and Aurizon acquired Aquila Resources in 2014. The price penalties would also reduce the marginal status of the project over the past three months as most ore contains lower grade iron ore.
Commodities Glossary learned:
Dry Metric Tonne Unit
A Dry Metric Tonne (Ton) Unit (dmtu) is the internationally agreed-upon unit of measure for iron ore pricing. It has the same mass value as a metric tonne, but the material has been dried to decrease the moisture level.
A dry metric ton unit consists of 1% of iron (Fe) contained in a tonne of ore, excluding moisture. The price per tonne of a certain quantity of iron ore is calculated by multiplying the cents/dmtu price by the percentage of iron content. Iron ore contracts are quoted in US Cents.
“The difference between the ‘‘wet tonnes’’ metric that Mineral Resources and other Australian miners use to disclose their costs and the ‘‘dry tonnes’’ metric used in received prices is also an important detail for investors to note. Customers do not pay for the moisture in iron ore…”