Australian iron ore mining firms Fenix and Fe Limited are using hedging to keep operating, with most of their unhedged rivals having stopped production or development with the reality of a more than halving of the iron ore price over the past four months.
Fenix is the best positioned of the two, with 50,000 t/month of sales hedged at A$230.30/dry metric tonne (dmt) for 12 months starting in October. This will likely see it cut production as its sales fall from the over 100,000 t/month it achieved during July-September. But with a cash cost of A$86.80/wet metric tonne fob Geraldton it should be able to survive, particularly if it cuts mining rates and runs down stocks as planned.
Fe is in a more precarious position and it is considering all options for when its hedging position runs out in December, leaving it vulnerable to weaker spot iron ore prices and higher freight rates. The firm has pricing collars for the October-December quarter at an average floor price of $153/dmt and an average ceiling price of $199/dmt basis to the 62pc Fe fines price. It sold its second shipment on a fixed price basis, which combined with realised hedge proceeds equates to a notional sale price of around $170/dmt.
Most of the unhedged smaller iron ore mining firms, including GWR, Mount Gibson and Venture Minerals, have already mothballed their high-cost operations in the hope that they will be able to return to them should prices rebound after the northern hemisphere winter lull. While marginal development projects that had been aggressively pursued have been slowed if not shelved.
Fe has an offtake agreement with Switzerland-based trading firm Glencore to supply iron ore from the Wiluna West JWD mine in the Mid-West region of Western Australia. Fenix, which operates the 1.25mn t/yr capacity Iron Ridge project in the Mid-West, sells 50pc of its ore through Chinese steel producer SinoSteel and 50pc through Australian iron ore producer Atlas Iron.
The Argus ICX iron ore was last assessed at $91.85/dmt cfr Qingdao on a 62pc Fe basis on 9 November, down from $118.80/dmt on 25 October and a high of $235.55/dmt on 12 May. Argus assessed 58pc Fe at $65.10/dmt cfr Qingdao on 9 November, down from $89.85/dmt on 25 October and a high of $207.10/dmt on 12 May.
| Marginal Australian iron ore projects | ||||
| Project | Capacity (mn t) | Fe content (%) | Status | |
| Fenix | Iron Ridge | 1.2 | 64.0 | still operating, hedged |
| Fe | JWD | 1.0 | 63.7 | considering future once hedging ends |
| GWR | C4 | 1.0 | 60.7 | shut |
| Nathan River Resources | Roper Bar | 2.0 | 58.5 | unknown |
| NT Bullion | Frances Creek | 2.0 | 59.0 | nothing shipped since June |
| Venture Minerals | Riley | 1.0 | 57.0 | suspended |
| Mount Gibson | Shine | 1.5 | 59.4 | shut |
| Strike Resources | Paulsens East | 1.5 | 62 lump and 59 fines | awaiting approvals, FID dependent on market conditions |
| Shree Minerals | Nelson Bay River | 1.4 | 58.0 | awaiting approvals |
| Source: Company reports | ||||
