Talk of US$100 iron ore puts spotlight on imminent restart at Mt Gibson’s Koolan mine
8th February 2019
There has been much chatter that iron ore prices could hit $US100/t in the wake of the Vale tailings dam disaster.
The reality is that it is impossible to gauge at this point as there is no certainty if the unfolding Vale response to the disaster, and that of the Brazilian government, will create a deficit in seaborne supplies or not.
Added to that is the uncertainty around whether Australia’s big three of Rio Tinto, BHP and Fortescue will abandon their production constraint and chase the higher prices (the 62% iron index price got to $US86.65/t ahead of the Lunar Year shutdown, up from the low $US60s in early December, and the $US75/t that prevailed before the dam collapse).
If they do – and they certainly have the capability – prices will be capped and the chatter about $US100/t prices will remain just that.
What is more certain is that for some iron ore producers, the price is already at $US100/t. We are talking about the producers of the premium 65% stuff, including Vale itself.
In the Australian context, that means Mount Gibson (MGX) and its $175m restart of the Koolan Island iron ore mine in the Kimberley region of Western Australia.
After repairing the seawall, and moving on Eric the crocodile, Mount Gibson is all set – weather permitting – to make its first sales at the end of March.
It will (again) be Australia’s highest-grade direct shipping hematite mine from a total reserve of 21mt grading 65.5% iron. On pre-Lunar New year pricing, 65% material was priced at a little bit more than $US100/t.
It’s why Mount Gibson shares have rocketed from 50c at the start of the year to 68c yesterday, valuing the company at $760m
The price spurt is not necessarily done.
Euroz in a research note yesterday highlighted the discrepancy between its $840m valuation of Koolan Island on current numbers and the $300m value implied by the share price, remembering Mount Gibson had cash and liquids of $431m on December 31 and its winding down mid-west iron ore interests.
“Whilst we acknowledge that $US80/t iron ore prices (62%) are unsustainable long-term, we expect that the short-term spike will provide a sugar hit to iron ore players,’’ Euroz said. It has a 75c price target on the stock.
BREAKER RESOURCES (BRB):
Resources Rising Stars’ “Summer Series” of full-day conferences in Sydney next Tuesday and Melbourne on Thursday have a long list of speakers from the junior sector.
One of the most highly anticipated presentations will be that from Breaker Resources’ (BRB) chairman, Tom “Colonel” Sanders.
Breaker has been a frustrating stock in the past couple of years. The bigger its virgin Bombora discovery 100km east of Kalgoorlie has got, the lower the share price has got.
It has been rough treatment for a company that has methodically put together a 1.1Moz resource at Bombora, with ongoing drilling pointing to much more open-cut material to come, and the emerging potential of high-grade shoots at depth.
But the market hasn’t been buying into the story, presumably because it first wants to see a high level of resource conversion to reserves and the completion of a feasibility study.
Having said that, Breaker’s share price and volumes have got a wriggle on of late. Maybe it is in anticipation of the Colonel’s presentations next week, when he will no doubt throw up some diagrams to convince the doubters that Bombora does “hang together” and will be “mineable”.
Most recently, Sanders said in the company’s December quarterly that it was evident the Lake Roe project (of which Bombora is part) has “camp-scale, multi-million ounce growth potential and high-grade mining optionality in a virgin setting with no historical mining legacy issues”.
Others agree with him. Patersons said in a recent research note that the latest round of drilling was expanding the footprint of Bombora and that it could clearly see 1.5 million oz to 2m oz in the next resource upgrade in the June quarter.
Patersons said there was room for Breaker’s enterprise value to grow anywhere between $150m and $200m, or 80c to $1.10 a share, (assuming $100EV per resource ounce). Yesterday, Breaker was trading at 34c.
That’s why the Colonel’s presentation is early awaited.
Prices for base metals have being doing all sorts of strange things in the opening months of 2019.
The strangest of the lot has been zinc. According to the pundits who had been calling zinc sharply lower in 2019, the galvanizing metal was meant to be back at $US1-$US1.10 a pound by now.
But here we are and zinc has worked its way back to $US1.24/lb after getting close to $US1.10/lb in mid-January.
No one is really sure why. The 60-day reversal in rising LME stocks has helped, as has China’s record steelmake last year, most of which goes into infrastructure where zinc’s galvanizing properties come into their own.
Other reasons include the big-name zinc producers reporting flat to lower output despite the much higher prices that prevailed last year and the zinc smelters slowing things down (tightening supplies) because the incentive pricing is not there at the moment.
None of that means that zinc is not headed to the $US1-$US1.10/lb level most are using to price equity values. But until it actually happens, the zinc producers are clearly in undervalued territory. The same goes for the explorer/developers.
It is against that backdrop that Peel Mining (PEX) is in for an interesting year. Its Wagga Tank/Southern Nights zinc-rich and high-grade polymetallic project near Cobar in NSW has just got a whole lot more interesting thanks to the discovery of a “very” high-grade zinc zone.
The so-called Southern Nights Central Zone yielded a spectacular 18.2m intersection grading 40.3% zinc, 15.7% lead, 0.97% copper, 356g/t silver and 2.77g/t gold from 182m.
It was the highest-grade zinc-rich intersection Peel has encountered at Wagga Tank/Southern Nights.
When coupled with adjacent intersections, the result indicated a zone of near-surface, very high-grade zinc-rich mineralisation which is now the target of close-spaced infill and extensional drilling to better define the geometry and scale of the mineralisation for scoping study purposes.
Peel was already working towards establishing a maiden resource estimate for Wagga Tank/Southern Nights by June.
With the stepped-up infill and extensional drilling now underway at the new high-grade zone and elsewhere, the maiden resource estimate is likely to contain a much bigger component of the higher confidence “indicated” category of mineralisation than was previously contemplated.
That augurs well for development planning, with a “dig and truck” operation, in which the ore would be treated at third-party mills in the Cobar region, considered the most likely outcome, although a stand-alone mining and milling option will also be canvassed.
One milling option would be the Endeavor mill at Cobar owned by CBH Resources, now part of Japan’s Toho. Peel and CBH are known to each other through their joint venture at the Mallee Bull copper-rich polymetallic deposit, itself a truck and dig development candidate.
Apart from the low capex involved in a dig and truck operation, it also means a much easier permitting route for Wagga Tank/Southern Nights. That is a real consideration in NSW. Peel last traded at 47c for a market cap of $103m.
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