The collapse in iron ore prices risks forcing Mount Gibson Iron Ltd. to shutter both its operating Australian mines and is prompting the company to look at buying base metal or coking coal assets.
The price Mount Gibson gets for its iron ore more than halved in the past year and it’s now contemplating the early closure of its Extension Hill mine, the Perth-based producer said Wednesday in a statement. In the interim, it’ll raise output in an effort to cut production costs.
The price squeeze that pushed iron ore to the lowest in about six years has pared margins for smaller iron ore producers, and shuttered mines from Canada to Sweden. Mount Gibson’s Koolan Island mine, engulfed by the Indian Ocean after a seawall collapse in November, is already scheduled to be placed on care and maintenance by the end of the year.
“The board doesn’t see us as being locked into iron ore,” Chief Executive Officer Jim Beyer said Wednesday in an interview. “We have the capabilities as miners, and it’s quite appropriate for us to be looking at other commodities.”
The producer is seeking to examine potential acquisitions of copper, lead, nickel, zinc or metallurgical coal assets, Beyer said by phone from Perth.
Cashed Up
Mount Gibson had cash of A$334 million ($249 million) as of June 30, it said in the statement. Some proceeds from any future insurance payouts against Koolan Island’s failure could also potentially be deployed for deals, he said.
Insurers have offered conditional confirmation that the company will be covered for the mine’s failure subject to further inquiries, according to the statement.
Mount Gibson rose 11 percent to 21 Australian cents in Sydney trading, taking its market value to A$229 million.
Iron ore’s volatility has prompted an “ongoing assessment of possible early closure of the Extension Hill mine in the event that price conditions deteriorate,” Mount Gibson said in the statement. Shuttering the site ahead of schedule would cost about A$45 million, it said.
Benchmark prices would need to hold “well below $50 a ton for some time” to prompt any action to close the site, Beyer said in the interview. Iron ore will probably tumble below $40 a ton this half on a “looming wave of supply,” from the largest producers, according to Jeremy Sussman an analyst at Clarksons Platou Securities Inc.
Iron ore with 62 percent content delivered to Qingdao fell 0.5 percent to $50.06 a dry ton on Tuesday, the first drop in four days, according to data from Metal Bulletin Ltd. Prices reached $44.59 on Wednesday, the lowest in data going back to May 2009.
Mount Gibson’s realized price in the three months to June 30 declined 54 percent to $38 a dry metric ton from $83 a ton a year earlier, it said in the statement.
Source: Bloomberg News
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