| SINGAPORE/SYDNEY, March 12
SINGAPORE/SYDNEY, March 12 Small iron ore miners
from Australia to Canada and China face a potential shakeout, as
a steep fall in prices makes it harder to raise funds for
planned growth and boosts the prospect of a round of mine
Iron ore prices .IO62-CN=SI posted their biggest one-day
fall in four-and-a-half years on Monday to below $105 a tonne -
from a peak of nearly $200 in February 2011 - amid forecasts
that supply could outstrip demand by more than 90 million tonnes
this year, the biggest global surplus since at least 2006.
Top miners such as Brazil's Vale and BHP Billiton
and Rio Tinto in Australia,
which dig up iron ore for as low as $20 a tonne, can easily
weather a downturn.
But the price fall spells hard times for smaller producers,
where production costs can run as high as $100 a tonne, owing to
lower ore grades and fewer economies of scale.
"It's going to be very tough for everybody, but for
high-cost miners, some are going to face life and death
problems," said Greg Pan Guocheng, chief executive of China
Hanking Holdings Ltd, a privately owned mainland
"Price decreases will certainly lead a lot of small miners
in China to either diversify or close down depending on how bad
the price performs."
Hanking, which has five mines in China's northeast, uses
modern technology and digs relatively richer-grade ores, which
means its cash costs run at around 400 yuan ($65) a tonne, below
those of many of its rivals, although Pan said falling prices
would "certainly impact" profit margins.
A slump in iron ore to a three-year low of $86.70 in
September 2012 shut more than a third of China's thousand-plus
small-scale producers, although many later reopened when prices
Growing signs of a downturn in China's rampant steel demand
has pushed iron prices down 22 percent so far this year, well
below the critical $120 threshold that has kept higher-cost
producers in business.
Citigroup sees the price falling to $80 by 2016, citing
"inescapable market surpluses".
BHP Billiton iron ore head Jimmy Wilson said
higher cost producers without the benefit of large economies of
scale faced a tougher time in weathering price dips.
"This will impact our organisation much less than other
Western Australia producers," Wilson told reporters on Tuesday.
Goldman Sachs has said 20 percent of iron ore production in
China may shut over 2014 and 2015, while up to 80 million tonnes
of production capacity may not be needed this year. UBS put the
figure at 94 million tonnes - compared with global seaborne
trade of 1.2 billion tonnes last year.
Goldman says the surplus could grow to 260 million tonnes by
2017 as miners ramping up output misjudge China's demand.
HIGH COSTS DENT HOPES
Outside of China, miners in Canada are cutting costs and
struggling to fund operations, while in Australia, smaller
producers are bracing for cost pressures.
North America's Cliffs Natural Resources Inc is
facing an ugly battle for control with an activist fund
investor, sparked by the cost of its Canadian iron ore
operation, which produced 8.7 million tonnes of ore at a cash
cost of more than $105 a tonne.
Labrador Iron Mines Holdings (LIM), also operating
in the Labrador trough in Eastern Canada, has warned it will
need fresh investment to continue mining this year after heavy
investment and a fall in iron ore grades.
Citigroup said a significant fall in iron ore prices may put
future projects at risk, including Australian billionaire Gina
Rinehart's $7.8-billion Roy Hill project and even Vale's Carajas
Serra Sul mine extension in Brazil.
"The companies without the benefit of infrastructure, the
ability to bring iron ore to the market at competitive costs are
the most exposed to the price," said Wayne Richards, executive
chairman of Australia-listed Tawana Resources, which is
digging an iron ore mine in Liberia.
"What you do not want is a capital intensive project right
In Australia, Atlas Iron has a blueprint to triple
output to 31 million tonnes a year. The company can generate
enough cash to fund two years of spending, but may also face a
minimum A$600-A$700 million bill to lay a rail spur and a
further A$500 million in development costs, RBC Capital Markets
estimates, unless it shares infrastructure with a rival.
"It's likely Atlas would have to gear up materially to fund,
or partially fund such development," RBC said.
Gindalbie Metals, which has a minority stake in the
Western Australia Karara venture with China's Anshan Iron and
Steel Group Corp, faces further dilution if, as
analysts expect, Ansteel covers its forthcoming loan payment.
Gindalbie, which expects to ship as much as 4.5 million
tonnes in the second half, carries production costs of $70 a
tonne or more.
For others, such as Flinders Mines Ltd, finding the
funding to get the ore to market may now prove a major hurdle.
After a frustrating several years seeking a "way out" for
ore from a Pilbara deposit some 200 km (125 miles) from the
coast, Flinders believes it has found a solution via a joint
venture, but the project still comes with a hefty $3.3 billion
($1 = 6.1462 Chinese yuan)
(Reporting by Manolo Serapio Jr. in Singapore and James Regan
in Sydney; Editing by Richard Pullin)