From The Thames to The Territory, resurgent iron ore is talk of the town and the toffs

Production cuts have revitalised Australian iron ore stocks, delivering bumper profits and attracting new players, including London’s super-rich property magnates, the Reuben Brothers
12th April 2019
Tim Treadgold

Production cuts have revitalised Australian iron ore stocks, delivering bumper profits and attracting new players, including London’s super-rich property magnates, the Reuben Brothers. But how long the good times can last is a critical question for investors.

Few analysts are prepared to stand in the way of the surging iron ore price, which this week hit a five-year high of $US95 a tonne, driving share prices up sharply, with most hitting fresh highs.

Fortescue reached $8.23 on Tuesday before easing to $7.98, up 26c in a week and up $4.68, or 130%, since the stock traded as low as $3.55 just seven months ago. Mt Gibson added 8c to reached a five-year high of $1.14 and Grange Resources rose to a six-year high of 34c, up 7c over the week.

A lone voice in warning that the good times can’t last, simply because supply always rises to meet demand, is Adrian Prendergast at Morgans, a stockbroking firm, who has bravely put a sell notice on Fortescue and given the stock a 12-month price target of $5.54 – implying a 32% fall.

But the iron ore event which did most to revive memories of past booms was the launch of Nathan River Resources by the Reuben Brothers through a shipping company, British Marine, in which they have a major interest, along with a long-time colleague, Alan Bekhor.

Nathan River made a modest splash early in the week when it recruited Stefan Murphy from Great Boulder Resources to take the job of chief executive, overseeing the rebirth of the Roper Bar mine in the NT, which closed four years ago, soon after $250 million was spent by Western Desert Resources on its development.

While not well known in Australia, the Reuben Brothers are two of Britain’s richest people, having made a fortune in Russian aluminium in the 1990s. The profits were ploughed into London real estate with huge holdings in Mayfair and St James, including the famous Burlington Arcade.

It’s through their commodity trading and shipping arms that they have funded the Roper Bar revival at a perfect time in the cycle, with 150,000 tonnes of ore ready to ship from the project’s port of Bing Bong on the Gulf of Carpentaria and more in stockpiles. The immediate plan is to export 1.5 million tonnes a year for an initial five years, with the potential to get bigger.

The iron ore revival, caused largely by a sharp fall in exports from Brazil and compounded by port closures during a cyclone off the WA coast (and a fire at a Rio Tinto facility), has lured another potential producer into the open, the Canadian-controlled Macarthur Minerals, which has plans to open a mine near Kalgoorlie and export through the port of Esperance.

At Esperance, the higher ore price has delivered an unexpected bonus for Mineral Resources, new owner of the Koolyanobbing mine which it bought from Cliffs Iron Ore, with a helping hand from the WA Government in the form of royalty relief and reduced port charges.

Another winner from the higher iron ore prices is Gina Rinehart, who will be enjoying a major boost to the earnings of her part-owned Roy Hill mine and her latest acquisition, the once-troubled Atlas Iron which, if acquired today, would cost her a lot more.

Other big news for mining investors this week was the calling of a May 18 federal election, with the potential for the resources sector to return to its unwelcome status as a political football, especially coal mining.

Interestingly, coal stocks are yet to reflect any negative sentiment. Whitehaven rose by 12c over the week to $4.04, with most of the rise coming after the polling date announcement. Stanmore Coal was up 9c over the week to $1.17.

Rare earth stocks weakened as political and diplomatic heat intensified over the proposed Wesfarmers bid for Lynas Corporation, including criticism of Wesfarmers dealing directly with the government of Malaysia before it makes a formal offer for Lynas – which lost 7c to $2.09, well below the indicative offer of $2.25 from Wesfarmers.

Battery stocks, especially lithium producers, had a mixed week amid confusion surrounding the latest electric car sales data and the uncertainty about the strength of future political support. Pilbara Minerals was 4c weaker at 70c. Galaxy lost 9c to $1.85.

The gold priced moved back about $US1300 an ounce, but that was not good enough to save two gold stocks from collapsing. Orinoco called in administrators after posting hefty losses at its Cascavel mine in Brazil while Sumatra Copper and Gold went the same way after failing to reorganise the debts covering its Indonesia mine.

Despite the pair of failures, leading gold stocks had a good week thanks to the price recovery. Northern Star added 65c to $9.26. Evolution put on 27c to $3.68, and Newcrest rose by 97cc to $25.70.

Other news events which moved share prices, up or down, included:

  • Kingsgate Consolidated added 2c to 28c after moving closer to starting a new life with a $55 million political risk insurance payout from the forced closure of its Chatree goldmine in Thailand.
  • Eagle Mountain Mining jumped 5c to 20c after the first phase of drilling at its Silver Mountain project in Arizona confirmed the copper and gold prospectivity of the area.
  • Kirkland Lake continued its remarkable rise after announcing record March quarter gold production of 231,879 ounces from its Australian and Canadian assets. On the market, the stock added $1.99 to $46.97, more than double the price of 12-months ago.
  • Cardinal Resources released an updated project finance and feasibility study for its Namdini gold project in Ghana, lifting the stock by 5c to 40c.
  • Aeris Resources disappointed investors when it prematurely ended a drill hole at its highly-regarded Torrens copper and gold exploration project in South Australia after hitting an artesian water aquifer. The stock slipped 2c lower to 14c.
  • Talisman Mining added half-a-cent to 8.2c as interest grows in its Blind Calf copper and gold project in NSW. Analysts at Bell Potter reckon the stock is heading for 21c sometime in the next 12-months, and
  • Staveley slipped 4c to 28c after announcing a $4.2 million capital raising priced at 26c with funds to be used on an accelerated exploration program in western Victoria and to finalise the acquisition of the Beaconsfield goldmine in Tasmania.

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