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  

Gondwana Junior Miners – Do They Feel Good?

THIS POST WAS ORIGINALLY PUBLISHED FEBRUARY 16, 2011

Gondwana Junior Miners – Do They Feel Good?

That is a really exciting period that we all are living in. Even the nature with its changing climate is reflecting all thrills and shake-ups that are happening today. And I think that major contributor to the world’s development is the “V” part of Nouriel Roubini’s LUV recovery. However, I would suggest to look into new dimension. A geologic term that is quite popular among the pundits: The Gondwana supercontinent that included Antarctica, South America, Africa, Madagascar, Australia, Arabian Peninsula and India.  This picture shows the history:

Source: Gondwana supercontinent underwent 60-degree rotation during Cambrian explosion

Although it was about 500 million years ago – isn’t it ironic that the current world economic order revolves around the same countries? That means something? And in my opinion – that creates a new mining group: The Gondwana Miners – that would definitely influence and shape the next century developments. As an example – there is a news flash that Colombia may increase its coal supply to Europe – which many analysts look at rather skeptical.

The Mining World Order is experiencing profound changes that directly affect the business. Some of the industry gurus have their own view and  pinpoint to the classic ‘commodity cycle’ aspect. However, what happens if this time the cycle would lead to some changes that are established for good???
Here are some major events that, in my opinion are shaping The Mining World Order at this time:

1. The boom in metals and commodities, there is no doubt now that this is the result of “V”-part recovery in Gondwana countries. Emerging markets’ population is driving demand for mining and energy. Iron ore, copper and coking coal are the leaders. In fact, refer to the latest statement by Rio Tinto’s representative More mining demand in next 20 years than in past 10 000 years – Rio Tinto . According to some experts, it will take 10 to 15 years — for global mining supply to catch up to the surge in emerging market demand.

2. This boom results in establishment of huge mining entities: e.g. Mt.Isa Mines – the biggest mining house in the 60-ies had market cap around $4.4 Billion in current USD; while BHP Billiton current number is around $ 250 Billion. In fact some news wires carry their reports under the heading “It is Good To Be a Miner” – referring to the news on tripling profits of Rio Tinto, and other major players. Big mining never had it so good – posts Reuters today in its commentary.

3. More and more pronounced are the concerns about the “critical metals” shortage: rare earth elements, molybdenum, vanadium, manganese, lithium, niobium, cobalt, tantalum, tungsten, indium and others

4. New resource deposits are becoming harder to find and take longer to develop; the most easily accessible resources being already exploited. However a lot of opportunities still exist – in Gondwana – and mining juniors are rapidly exploiting them – acting quick and efficient.

5. Changes in the way mining financing are done. The big companies accumulated lots of cash and it runs out that is more practical to revert to M&A, rather than prospect and develop. And more spice is being added to financing  by the drastic announcements that were made last week: mergers of major stock exchanges – LSE-TSX; Deutsche Borse and NYSE Euronex; Hong Kong Stock Exchange – CBOE (?),  Nasdaq (?); exchanges from Peru, Colombia and Chile are merging; Singapore Stock Exchange –  Australian Stock Exchange. This all will directly affect those miners that are looking into raising money through public offerings. In fact, today’s news wires carry the item that Chinese companies are turning to equity markets, rather than debt borrowing. This process is clearly the itchiest for all mentioned exchanges – the recent days saw many promotional news on each of them – like this one that came out today: Toronto Stock Exchange is an international leader in the mining world6.  The response of the industries that support mining is also noticeable. Consolidation of the law firms takes place –as it was reported today: GLOBAL law firm Clifford Chance has unveiled a merger with two leading Australian practices to give it greater exposure to the booming resources trade with Asia.

So, where are the junior miners in this picture? As usual, I think, that they trying to benefit the most:

• Thoroughly analyze the global market and all changes that are happening in commodities – as the result timely react all these. While big mining houses have a lot of cash, they are pretty limited to expedient execution of their plans; and in many cases they are not interested in small and medium-sized opportunities. Sometimes it happens that the most accessible areas of the world still have small projects that can be consolidated.
• It easier for junior miners to secure financing and do it is a much quicker way form meeting the investors to execution of projects.
• And here is a perfect chance to show up at the Global Market, sell equity or the venture as the whole and start the total mining process cycle with other project.

So, may I finish on an optimistic note: Gondwana junior miners are in the right place and at the right time in the new Mining World Order.

2011 Africa - Investment Destination for Miners - Part IV: West Africa Iron Ore

THIS POST WAS ORIGINALLY PUBLISHED JANUARY 07, 2011

2011 Africa - Investment Destination for Miners - Part IV: West Africa Iron Ore

In our last post we discussed attractiveness of West Africa for the gold producers. However, gold is not the only one commodity present in the area. Generally speaking, the governments are doing much to attract investors. This table shows a comparison of West African states: 

Source: Doing Business in West Africa
ACP MINISTERIAL MEETING PRESENTATION gives detailed description of transportation system in West Africa that is used to deliver various minerals by the mining companies:

 

As it is seen from the map, a considerable amount of iron ore is extracted and delivered. Indeed the majority of deposits are located in West Africa, as Goldman Sachs portrays it in a nice way:

 

The Financial Times of London in its recent report presents this map that shows the iron ore projects in West Africa

This map shows six of the world’s biggest mining and steel companies are heavily engaged in development of their iron ore programs in West Africa: Guinea, Liberia and Sierra Leone. They are:

• Vale  (NYSE: VALE)
• Rio Tinto  (NYSE: RTP)
• BHP Billiton (NYSE: BHP)
• ArcelorMittal  (NYSE: MT)
• Aluminum Corp of China or Chinalco  (NYSE: ACH)
• Severstal, Russia

While detailed information on the big corporations’ programs may be found on relevant Web-sites, the following documents might be of interest:
ArcelorMittal‟s Iron Ore Mining Project in Liberia
Sierra Leone Mining Sector Overview
Liberia: Investment and Mining Opportunities
CAMEROON :A NEW MINING DESTINATION IN AFRICA
African Aura describes in detail their iron ore projects in Liberia and Cameroon in this presentation.