The junior end of the iron ore sector is continuing to contract in the wake of volatile prices, with Mt Gibson Iron (ASX:MGX) confirming plans on Friday to suspend its new Shine mine in WA’s Mid West.
It is the latest high-cost operation to fall by the wayside since iron ore prices lost more than half their value over the past quarter, falling from record highs of around US$230/t to a low of US$92.98/t last week.
They have since recovered to around US$120/t on restocking ahead of the Chinese holiday season and, grimly, amid potential supply disruptions following the death of a 25-year-old drill and blast worker at Fortescue’s Solomon hub on Thursday.
But the unpredictability, mixed with soaring freight costs, has been too much for some juniors to bear. Mt Gibson joins Venture Minerals (ASX:VMS), GWR Group (ASX:GWR) and private miner Indus Mining at the Ridges mine in the Kimberley in having suspended operations over the past two weeks.
Others which had their production hedged at higher prices like Strike Resources (ASX:SRK), Fe Limited (ASX:FEL) and Fenix Resources (ASX:FEX) appear to be safe for now, with the hedges buying them time to work on reducing their cost base.
The long-standing junior iron ore miner will place Shine on care and maintenance after a final shipment in October, having only just begun transporting ore to Asia in August, and withdraw its guidance for 2021-22.
“This is a disappointing decision for the Company given that the Shine mine is in its first year of operation,” the company said.
“However, it is a commercially sensible one necessary to limit cash outflows and preserve the future optionality of the Shine deposit.
“The substantial recent decline in iron ore prices has been exacerbated by a significant widening of discounts and penalties for medium and lower grade iron ore products, a rapid rise in shipping freight rates from Geraldton Port (from under US$15 per tonne shipped to China to over US$30 per tonne currently) and relatively high road transportation costs in the Mid-West given the distances involved.”