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  

Seeking Alpha on Iron Ore Basics

THIS POST WAS ORIGINALLY PUBLISHED APRIL 10, 2011

Seeking Alpha on Iron Ore Basics

Today the Seeking Alpha publishes a very informative material on iron ore: The Important Factors to Consider When Investing in Iron Ore by James Duade. In my opinion, this is very useful for both investors and mining companies, as the author pinpoints some crucial facts.

"... the market is beginning to see quite a few new mining companies spring up. For instance earlier this month we saw a Canadian IPO for an iron ore company in the Ukraine called Black Iron. Additionally, some iron ore firms are starting to attempt to develop deposits in relatively remote areas like Zone Resources (ZRESF.PK) in Northern Canada. This article will look at some of the more technical aspects that an investor should consider when conducting their diligence on a firm in the iron ore sector. The goal is to give investors a few tools that they can use to make intelligent decisions about the positions they decide to take."

Besides, explaining the iron ore basics, Mr. Duade also mentions hematite, taconite and magnetite -- and those companies that are major producers. Also worth reading is the discussion of Platts Iron Ore Benchmark index.

Overall, the material is not something very new and exciting for the mining gurus, but for the investment purposes -- it is worth reading.

"Intelligent investors will pay close attention to the location of the mine, the cost per ton--including transportation of the iron to port--and the type and grade of the iron product the firm is selling."

You may read it at this link.

Zambia: Update on Mining Operations - Part III

THIS POST WAS ORIGINALLY PUBLISHED JUNE 28, 2010

Zambia: Update on Mining Operations - Part III

We are continuing with the review of mining companies that operate in Zambia.

Glencore International AG is a privately held commodity trader, headquartered in Baar, Switzerland.
Mopani Copper Mine is an integrated copper and cobalt producer located in the Copperbelt of Zambia.
This JV shareholders are:

• Glencore International AG - 73%
• First Quantum Minerals Ltd - 16.9%
• ZCCM Investments Holdings Plc - 10%

This June it was reported that Mopani Copper Mines has invested more than USD 1 billion in its operations. Investments in operations in Kitwe and Mufulira mines in the past 10 years has exceeded investment by privatized mines in Zambia.

Mopani's operations consist of four underground mines, a concentrator and a cobalt plant in the town of Kitwe and an underground mine, concentrator, smelter and refinery in the town of Mufulira. The capacity of the Mufulira Copper Smelter is being expanded in a phased approach to 870,000 tons of concentrate by the end of 2010. The current capacity with the new Isa smelt furnace is 650,000 tons of concentrate.
Also, the company has four SXEW plants (Solvent Extraction and Electrowinning), two at Mufulira and two at Nkana. The feed is sourced from both in-situ leaching, vat leaching and heap leaching. Glencore's initial interest was acquired through a subsidiary in 2000
Production capacity

• 255,000MT Copper metal
• 2,200MT Cobalt

Number of employees 7,800
A very interesting essay on Mufulira Mine can be viewed here. It has this map

Also for social network fans – here is a link to Mufulira Facebook page
Zambezi Resources Limited (Zambezi) is exploring for and developing copper and gold projects in Southern Zambia. Zambezi has identified seven major project areas, which it is actively exploring. The projects have been identified as Iron Oxide Copper Gold (IOCG) type deposits and also shear-hosted gold deposits. These projects are contained within eight prospecting licenses covering an area of over 16,000km². Zambezi currently retains 100% ownership of its projects, although Zambia's abundant mineral endowment has lead Zambezi to seek joint venture partners to assist with funding exploration on some of its projects.
Zambezi listed on the London Stock Exchange’s AIM in July 2004, raising £2.5 million.  Since then Zambezi has raised an additional £14 million on AIM through subsequent placements, including a strategic placement to Glencore.  In July 2007, Zambezi successfully listed on the ASX through an IPO, raising an additional A$15 million.
An outdated (2008) Corporate brochure  maybe downloaded here
Zambezi’s relatively mature exploration portfolio and the removal of the retention license option in Zambia in early 2008 severely constrained Zambezi’s strategic options. ZRL voluntarily suspended trading on the ASX on 30th October 2008 and on AIM on 3rd November 2008 in order to secure the finances of the Company. The Company’s story and current status can be viewed at this delisted Web-site.
More coming soon…

UPDATE:
I would like to pinpoint to today's long piece in the Zambian Watchdog: What is happening to Konkola Copper Mines? This has a very detailed critique of the Zambian mining industry and concludes with the following:

"Government should immediately review the entire regime governing the mining sector and to avert the boiling social crisis and despondency that has engulfed the Copperbelt. This will also allow realistic financial benefits to accrue to the country and its citizens. The country should be allowed to collect a credible share of revenue from this wealth. Government has a duty to protect the rights of workers, to provide social service to local communities, and to be an effective regulator in order to protect the environment."

Zambia: Update on Mining Operations – Part II

THIS POST WAS ORIGINALLY PUBLISHED JUNE 24, 2010

Zambia: Update on Mining Operations – Part II

In continuation of our previous post we are looking at major mining companies in Zambia. Equinox Minerals Limited is an international mining company that is dual listed on the Toronto Stock Exchange and the Australian Securities Exchange (Symbol: 'EQN'). Since 1999 it is operating a 100% owned large scale Lumwana copper mine. Situated 220 km west of the Zambian Copperbelt, Lumwana is now a major open-cut copper mine -- at initial design capacity, Lumwana will process in excess of 20 million tons of ore per year, mined at an average life of mine strip ratio of 4.2:1.  Lumwana ore, which is predominantly sulphide, is treated through a large conventional plant, producing a copper concentrate for sale to local and international offtakers. In 2008, Equinox completed a uranium feasibility study (UFS) investigating the onsite treatment of discrete, high grade uranium mineralization contained within the Lumwana mine copper pitshells. The UFS confirmed the potential viability of onsite uranium treatment, producing about 2 million pounds of uranium per year over a six to seven year period.
The Latest corporate presentation (of June 21, 2010 can be downloaded  at this link ) describes all corporate activities in the country, and has this brief overview:

The Company is reporting that Lumwana production for the first two months of Q2-2010 totaled 29,733 tons (66 M lbs) of copper in concentrate - a 46% increase on the average monthly production results of Q1-2010 and a 83% increase on the average monthly production results for the corresponding period Q2-2009. Equinox has maintained its full-year production guidance of 135,000 tons of copper in concentrate for this year, at a cash cost of $1,35/lb.
The Company has begun studies into a phased capacity expansion at Lumwana mine. This will examine an initial expansion to 24-million tons, which Equinox believes could be achieved with limited additional spending and within an 18-month timeframe, followed by a further increase to an eventual 35-million tons a year.
 First Quantum Minerals Ltd., a growing mining and metals company, is engaged in mineral exploration, development, mining and refining. The Company produces LME grade "A" copper cathode, copper in concentrate, gold and sulphuric acid. First Quantum's common shares are listed for trading on the Toronto Stock Exchange in Canada (symbol "FM"), the London Stock Exchange (symbol "FQM") in the United Kingdom. First Quantum is a member of the S&P/TSX 60 index.
Investor presentation contains major data on all projects, including the following:

 Kalumbila Exploration Projects (100%), Zambia

• Acquired for cash and shares valued at approx. US$260M in January 2010
• Main asset is a controlling interest in mineral prospecting licenses covering 2,850 km2on the periphery of the Kabombo Dome
• Includes the Kalumbila copper deposit —undergoing infill drill program to establish indicated resource on the open-pittable mineralization identified by drill results to date
• Also includes the Kawako nickel and the Kawanga uranium prospects

 Kansanshi Copper-Gold Mine, Zambia

• 80% owned, in Zambia
• Located in the North Western Province
• Achieved commercial production in 2005
• 13-year estimated mine life; 20-year including inferred resources
• Extensive drill program to update reserves and resources estimate completed

   Bwana Mkubwa Copper SX\EW Plant, Zambia

• 100% owned, in Zambia
• Produces copper cathode and sulphuric acid
• Currently processing the Lonshi oxide ore at an output level of approximately 800 tons per month

 The company is fast-tracking development of the Kalumbila copper project, which it acquired last year through the takeover of Kiwara Plc. The project could be producing as early as 2013 and could churn out as much as 150,000 tons of copper a year. A very cognitive story on Kansnashi mine was recently produced by the Vancouver Sun (A bittersweet story in Zambia).

More to follow…..