Iron Ore Miners – Can We Get Financing? - with Update

THIS POST WAS ORIGINALLY PUBLISHED APRIL 27, 2011

Iron Ore Miners – Can We Get Financing? - with Update

Today iron ore seems to be an extremely hot commodity – that is a big demand. Hundreds of documents are produced daily that describe various aspects of this ore – everything associated with it. In my shot post I would like to give an update on the most burning issue for miners – can we get money to fund our iron ore project? At the first glance, it seems that – without any doubts – lots of investors are willing to invest. However, there are lots of projects that are very sound itself, but here come a substantial intricacy in conveying our message to investor.

In my Blog earlier I touched a number of issues, associated with the work that miners should do to prepare the company for sale/investment:

Want to Sell a Mining Property? - CONSULTANTS' ROLES

Want to Sell a Mining Property? Due Diligence

Mining Companies: Where to Get Money?

Mining Companies: Where to Get Money? - An Eyeball on Investors

Mining Companies: Where to Get Money? - Investor Presentation

Deloitte: Develop a New Mining Strategy

Seeking Alpha on Iron Ore Basics

There are a lot of materials that are helpful in preparation for investor discussions. An extremely interesting document that has a lot of advice was recently released by The Boston Consulting Group:

Value Creation in Mining Companies . That is a very cognitive reading material for mining professionals (in particular the “Value Creating Questions for Mining Executives”). I would however, pinpoint one of the suggestions for the Junior Mining companies: “COMPANIES THAT DEVELOP THE INTELLIGENCE AND AGILITY TO PLAY IN THE JUNIOR MARKET WILL GAIN A CLEAR EDGE”.

Indeed, intelligence and agility – these are the sources for success. Talking about intelligence – what is the picture with iron ore?

Back in August 2010 International Business Times stated: most investors in this sector are ignoring a more important medium term trend, the looming oversupply of iron ore as new mines and expansions come on stream. (Iron Ore: Watch The Emerging Glut).

Here is also a well-known graph form McKinsey:

 

Today, we have this news:

SHANGHAI, April 27 (Reuters) - Global supply and demand conditions for iron ore may reverse sooner than expected after a years-long investment frenzy, the chief of China's leading steelmaker said. "In the last decade, iron ore has turned into a crazy stone from an ordinary stone," Baosteel Group chairman Xu Lejiang was quoted as saying by the Shanghai Securities News. The current cycle was coming to an end and massive investment over the past 10 years would soon translate into an iron ore supply surge, said Xu.  (China's Baosteel warns of end to iron ore investment frenzy – paper)

The more gloomy picture comes here:

“Iron ore reserves at present seem quite vast, but some are starting to suggest that the maths of continual exponential increase in consumption can even make this resource seem quite finite. For instance, Lester Brown of the Worldwatch Institute has suggested iron ore could run out within 64 years based on an extremely conservative extrapolation of 2% growth per year.”

Indeed, there is a lot of discussions recently on new areas for iron ore mining:

Barents Region investment boom

For instance iron ore mines, that are now increasing production and new opening in all four countries; LKAB in Gällivare-Kiruna increase the production, Sydvaranger in Kirkenes has re-opened an old mine, Northland mining company are opening new mines in the Swedish-Finnish border areas around Kolari and Pajala, while Russia’s Severstal invests in the iron-ore mines in Olenogorsk.

An interesting discussion is proposed in this piece by The International Resource Journal: Are we on the way to Pilbara Two in West Africa?. This is rather speculative announcement regarding Rio Tinto : “moves were made to suggest that majors in the nation’s iron ore province could be considering shipping out to look for more favourable  ground, and West Africa appeared to be the destination up for discussion.”

By RBC Capital Markets’ calculations, planned African projects total at least 500 Mt/y, at an all-in capital cost of over $50 billion over the next eight years. (African iron ore projects: potential for new supply).

And other exciting comparison: that concerns Africa and Artic Circle deposit:

"London-based Rio Tinto (NYSE: RIO) claims that the Simandou deposit in the West African country of Guinea – which it controls with a 53% stake – is the largest iron ore deposit in the world. Reserve estimates for Simandou, however, are only 2.25 billion tons, which is less than Baffinland’s 4-billion-ton-potential but more than Baffinland’s “official” estimate of 854 million tons."

For those, interested to invest in iron ore mining companies, a good example is presented by MoneyWeb: The Investment Case - Kumba Iron Ore. “As a focused, iron ore-mining business, Kumba has benefited from the more than five-fold increase in the price of this resource over the last ten years” – with detailed structure of investments.

Top Metal: Iron Trumps Copper  - this is the item of the ANNUAL SURVEY OF GLOBAL MINING INVESTMENT that is published in the latest ASIA Miner March/April 2011 issue

“Iron ore investment has surpassed that of copper with a project pipeline of $162 billion—compared with $155 million for copper— while gold and nickel are at much lower levels ($83 billion and $69 billion, respectively) distantly followed by the sector, valued at $15–$20 billion, in which uranium, lead/zinc and PGMs are to be found.

 

 

Iron ore outpaced the other metals in terms of new investment, registering an increase to $28 billion. New gold project investment totaled $7 billion and copper to just under $6 billion in 2010.

The average iron ore project investment  was almost $1.3 billion, up from $750 million, while the average gold project has remained steady at $204 million. Ir on ore’s share of total new investment announced in 2010 increased again after a decline in 2009, reaching 47%. The continuing demand growth for steel and the concomitant high prices paid for iron ore point to a strong increase in iron ore production in the next three to five years.”

And some more news URLs:

• African iron ore glows
• BHP to spend $9,5bn on Australian iron-ore and coal expansions
• Rio Tinto in $1 bn iron ore investments in Australia, Canada
• Strike while the iron is hot - and overview of iron ore mining companies

And finalizing my brief overview: Is iron ore the new gold? – that was the question that was raised by one of the investor consulting Website.

“There are several ways to play iron ore. One is to invest in a global metals exchange traded fund. The other is to invest in the big three iron ore producers listed above individually (the three collectively control over 65% of the market) or the third, for those with the stomach to do it, is to invest in junior iron ore companies- big upside, big risk…”

Thus, to be or not to be? Can iron ore miners get funds for their projects? Or this is too risky ?

Think about intelligence and agility
UPDATE:

 

"How long until the window on rising iron-ore prices closes? Global demand is driving prices higher and shipping costs are at historic lows. But only companies poised to get into production quickly will be able to capitalize."

This is from just published interview Geordie Mark: Global Demand for Iron Ore on Rise