It is a tough time for junior and developmental iron ore miners. Increased supply from the majors – Vale, Rio Tinto and BHP Billiton, which account for around 70% of the 1.2 billion mt in seaborne trade – has pushed spot prices lower towards $90/dry mt in recent weeks, and equity valuations have been depressed by fears about available tonnage outstripping demand growth.
“These juniors can certainly be volatile and they will always get smashed when the market is on ‘risk off’ mode,” a London-based iron ore analyst said.
Capital is often scarce for the smaller guy, even those already in production, and many have been scrambling to stay afloat over the last year or so. In Scandinavia, Dannemora Mineral and Northland Resources have both identified liquidity shortfalls recently.
Dannemora is currently sheltering under Sweden’s version of Chapter 11 creditor protection. Northland is issuing more shares to bolster reserves.
Sierra Leone-focused London Mining’s share price was trading below 37 pence around 1600 London time on June 5th.
This was down from over 142 pence on November 6, 2013. The company said earlier this year it is seeking a strategic partner to help continue operating its flagship Marampa mine.
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AIM-listed African Minerals — which also operates in Sierra Leone via the Tonkolili deposit — was trading at 91 pence around 1630 in London, down from 253.75 pence on June 3, 2013.
The majors have not been as affected by the erosion of ore prices and stock valuations, perhaps thanks to more diversified portfolios. In London, BHP was down marginally, at 1,876 pence/share on June 5, from 1,894 on June 4, 2013.
In New York, Vale was down from above $14 in June 2013, closing at $12.74 on June 5, 2014. Rio Tinto has completely bucked the bearish trend afflicting some of its mining brethren. On June 5 it was trading at 3,144 pence/share in London, up from 2,882 on June 4, 2013.
Despite majors outperforming most smaller miners, a raft of consolidation is unlikely.
“I don’t think the majors have much appetite for buying juniors right now, so the move would more likely come from either a new (or aspiring) entrant or maybe Chinese or Indian steel group – or maybe a sovereign wealth fund,” the London-based analyst said.
Iron ore, the formerly ‘sexy’ commodity that was seducing investors left and right, is once again less desirable.
Big Australian projects have been more difficult to get off the ground – as evidenced by Sino Iron’s magnetite project – and Chinese capital is increasingly selective despite the encouragement of the central government to develop captive overseas resources.
At Hong Kong Mines and Money in March, it was noticeable there were few mainland Chinese investors and mills, with most attendees coming from Australian and Canadian juniors’.
Investor reticence is no surprise. Macquarie Bank last month revised its 2014 price forecast down 8% to $111/dry mt CFR. Consultancy WoodMackenzie has also trimmed its forecast to $107/dmt CFR, based on TSI’s 62% Fe reference price.
Standard Bank sees prices averaging at $115/dmt, with trading levels ranging between $108-122/dmt for the remainder of the year, according to guidance issued in April.
Since January 2 through June 6 this year, the price of 62% fines has averaged $114.32/dmt, based on Platts IODEX.
It is only those companies low on the cost curve, like the majors, that will benefit from such prices – particularly given increased market share where they have ramped up production.