David Stringer Melbourne
AS unlikely as it seems, Eric the saltwater crocodile is shaping up as a potential bellwether for the global iron ore market.
If the flooded mine in a remote corner of Australia that the reptile calls home is reopened and he’s evicted, it’ll be a signal that iron ore’s price plunge is ending.
Back in November, the prospects appeared bleak for Mount Gibson Iron. Its biggest mine, Koolan Island, was engulfed by seawater after the collapse of part of the 75m- wide wall that kept out the Indian Ocean and Eric.
Now with a Bloomberg index of 28 producers, including Vale and Rio Tinto, gaining 10 percent this month and optimism prices for the steelmaking ingredient may rise from their five year-lows, Mount Gibson is studying whether to fix the wall, drain the pit and restart mining.
“By the time we come to make that decision, we’ll be more confident about what the outlook looks like than now,” chief executive Jim Beyer said, after surveying the site. “I’m modestly optimistic.”
The price of ore with 62 percent iron content at the Chinese port of Qingdao was unchanged on Monday at $63.44 (R740) a ton. It touched $61.20 a ton on February 9, the lowest on record dating back to May 2009 according to Metal Bulletin. Prices hit a peak of $191.70 on February 17, 2011.
Positive sign
Pacific Investment forecasts iron ore prices have reached a bottom and will probably trade in a range between $60 and $70 a ton. Falling Chinese port inventories could be a positive sign, according to Westpac Banking, which sees iron ore rising to around $75 a ton later this year. HSBC sees prices averaging $85 in 2015, while Standard Chartered tips $87 a ton.
Cancellations and postponements of about 22 iron ore projects with 140 million tons of capacity in the past six months may provide a turning point for iron ore producers, according to Bloomberg Intelligence.
“The market fundamentals suggest that the price has to be higher in the long term,” said Nicki Ivory, a Perth-based national mining leader at Deloitte Touche Tohmatsu.
Declining currencies in Australia and Brazil, the two largest iron ore exporters, lower oil prices and freight rates that have almost halved in the past year, are aiding producers as they work to cut costs and protect margins, she said.
Flooded
Koolan Island is located about 130km north of Derby in the Buccaneer Archipelago off Australia’s north-western coast.
It was first exploited by pearling fleets in the 19th century for ballast and mined for about three decades by BHP Billiton, which closed and flooded the site in 1993. Aztec Resources, granted a permit to begin new exploration drilling on the island in 2004 was acquired by Mount Gibson in a takeover completed in 2007.
A decision on Koolan is scheduled by the end of June, once studies on rehabilitation costs are complete. Efforts to ready the site to resume operations would take a further year to 18 months, including moving on the mine’s resident crocodile, according to Beyer. Eric was previously evicted in 2006 in advance of a resumption of mining the following year.
“The guys on site were telling me that Eric has appeared back in the main pit again,” Beyer said, after visiting on February 5. “Someone spotted him back in there, whether it’s Eric or a son of Eric, we just don’t know.”
It may be too soon to see a revival in prices with more mine closures needed before the over-supplied market reaches a turning point, according to London-based metals researcher CRU. The global surplus will expand to 85m tons this year from 39m tons in 2014, according to Australia & New Zealand Banking Group.
Citing the costs involved and forecasts of lower prices, UBS and Wilson HTM Investment are among institutions that don’t expect Koolan Island to reopen. Iron ore may average $58 a ton in 2015 because of continued additions to supply, ANZ said on February 11.
The outlook and prospect of possible future flooding mean “we don’t expect the seawall to be rehabilitated”, Wilson HTM analyst Phillip Chippindale said from Sydney. – Bloomberg