Minor miners face major headache from iron ore giants
* Slim chances for juniors iron ore miners as lower prices loom
* Many running short on cash and finding few options for funds
* Vale, Rio, BHP better able to withstand dips in iron ore price cycle
By James Regan
SYDNEY, July 22 (Reuters) - From Africa to Australia, opportunities to develop small iron mines are fast disappearing, as cash dries up and miners are unable to compete with the crushingly low production costs of the sector's heavyweights.
In Australia alone, a half a dozen or more projects pegged by prospectors in better times sit stranded in the outback with no timetable for development.
Most are running short on money and have stripped payrolls and equipment spending to a bare minimum, awaiting a turnaround that forecasters predict is a long way off at best.
Companies such as Aquila Resources Ltd, Flinders Mines Ltd and Iron Road Ltd, which a year ago were leading a wave of new investment in iron ore, have had their stocks gutted as investors turned cold on their prospects.
"This is not the time to be developing a new iron ore mine, the big boys are making sure of that," said Keith Goode, an analyst for Eagle Mining Research.
Global miners Vale, BHP Billiton and Rio Tinto are increasing their supply dominance in the world's second-biggest shipped commodity market after oil.
The three already control some 70 percent of seaborne trade and are spending billions of dollars on new mines to capture an even bigger share, just as the price outlook for the steel-making raw material deteriorates and a supply glut looms.
Iron ore prices are forecast to reach a four-year low in 2013, according to a Reuters poll. In a few years, some analysts see prices under $100 a tonne.
The majors are cornering the market with costs of $30-$50 a tonne, compared with estimates of up to $100 for new entrants.
Add to that, expenses around rail lines that can stretch hundreds of kilometers across deserts or through jungles, limited port allocations and lower grade ores and it's little surprise new entrants are struggling.
Fortescue Metals Group, Australia third-biggest iron ore miner, has told prospector Brockman Mining Ltd it could charge the company up to $576 million a year just to access part of its Australian rail line.
Another upstart, Aquila Resources, had no option other than to put its West Pilbara Iron Ore project in Australia on ice this year. It would have required billions to be spent on rail and ports, stretching funding too far.
Japan's Mitsubishi Corp has opted to suspend work on a port and rail line in Australia that promised to establish a new iron ore export hub, 1,200 km (750 miles) from rail lines controlled by BHP, Rio Tinto and Fortescue, further diminishing the hopes of aspirants.
In West Africa, valuations for a number of iron ore companies have fallen so low to suggest the market no longer believes these projects will see daylight, according to Hunter Hillcoat, an analyst at Investec.
"The view that the market is not ascribing value to these companies on the basis that their projects won't get developed has been really reinforced in the past few months," he said.
Zanaga, partnered with Glencore Xstrata on its project in Republic of Congo, has a market cap of $47 million compared to around $38 million in cash reserves.
The firm's stock has lost about 60 percent this year, while Guinea-focused miner Bellzone has had around 70 percent wiped off its market cap.
Bellzone was forced to sell its bulk-carrying ship after a cut in its iron ore production forecasts at its Forecariah mine meant the vessel was no longer needed.
Another Africa iron ore developer, Australian-listed Sundance Resources Ltd, has been unable to attract partners to back its Mbalam-Nabeba iron ore mine straddling Cameroon and the Republic of Congo.
Shares in Sundance have lost about three quarters this year because its planned partner, China's Hanlong Group, failed to secure backing for $4 billion in development financing.
The plight of the juniors has not led to much consolidation either.
One of the few exceptions has been IMIC, which recently made an agreed bid for Afferro , which owns 100 percent of the Nkout iron ore deposit in Cameroon.
That deal was unique because IMIC had already sealed a partnership with China to build transport links so the raw material can be exported.
LITTLE ROOM FOR UPSTARTS
Volatile trade in iron ore has seen prices range between $110-$160 a tonne this year, joining a wide range of commodities hit by excess supply and slowing demand from China.
Oversupply of seaborne iron ore will be about 155 million tonnes next year, according to analysts at UBS.
Almost all the new supply is coming from the big miners.
UBS, Goldman Sachs and other banks warn prices could dip as low as $80 a tonne versus today's price of $130 .
Access to funds, particularly equity funding, has also dried up, further stretching developers.
"There is little appetite for debt funding for most of these projects and capital markets are closed too," which doesn't leave much choice," said Paul Adams, an analyst for DJ Carmichael, which specialises in small mining companies.
Even an iron ore project being developed by Gina Rinehart, Australia's richest person, to mine 55 million tonnes a year is taking longer-than expected to fund.
After years in pre-development, her Roy Hill project is just now overcoming key hurdles holding up debt negotiations, sources familiar with the talks told Reuters.
However, if it starts producing by 2015 the project aiming to become Australia's fourth-largest iron ore producer will make it even harder for smaller rivals.
The iron ore market in Australia has been sliced in three by Rio Tinto, BHP and Fortescue mining an additional 100 million tonnes next year, equivalent to a fifth of China's imports.
Vale, the world's biggest producing company, is spending $19 billion to expand its footprint by nearly a third in its home country of Brazil.
The strategy relies on improving economies of scale to lower the cost of producing each tonne of ore to levels smaller players find it impossible to match.
That leaves little room for upstarts elsewhere in the world.
"The Rio's and BHP's are cushioned through every stage of the cycle, high and low," said Carmichael's Adams. "Unless, you are cycle-proof, it is going to be a very tough road."