Minor miners face major headache from iron ore giants – by James Regan (Reuters U.S. – July 21, 2013)


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.

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