Political manoeuvring continuing in South African mining sector. Black Empowerment 2?
Much has been made of the advantages of direct shipping iron ore over the past few years, but the fall in iron ore pricing has squeezed margins for many. Iron ore products that pay a premium over fines, such as lump ore and pelletised production trade at bigger premiums to the benchmark pricing and particularly in the case of pellets which aim at more specialised end user markets, the drop in pricing has not been as severe.
So much so, that Grange Resources in Australia has felt compelled to put out a press release to try and differentiate themselves from the general sell off in iron ore stock. <http://www.grangeresources.com.au/clients/grange/downloads/item226/grange_resources_-_market_update_-_16_march_2015.pdf>
Another iron ore junior bites the dust under high debt load of +600 M USD in bank debt and convertibles and a mine on care and maintenance due to low prices and disputes with Chinese partner. This project had some of the lowest cash costs in the junior iron sector and had made the hurdle into production, yet even so the scale of capital investment and the associated debt load proved too much in the “return to normal” of iron ore pricing. This raises serious questions about market optimism, business models, reasonable pricing and whether small companies really have the resources to develop and operate capital projects of this scale.
Following in Zambia’s footsteps??