The iron-ore business is so lousy that one Canadian mining company is shelving its biggest project and starting a new venture: selling Australian eggs to China.
The abrupt shift at Century Iron Mines was prompted by a global iron-ore surplus that sent prices plunging 68 per cent in four years. Chief executive officer Sandy Chim does not expect a recovery until 2018, so he’s taken a cue from Australian mining billionaires Gina Rinehart and Andrew Forrest, who are expanding into food production as demand rises across Asia.
“Australia is going from mining to dining,” Chim said by phone from Toronto, where the company created a unit called Century Food. The plan is to distribute eggs produced by Sunny Queen, a chicken-farmer cooperative in Queensland, to consumers in Hong Kong and Macau.
With the backing of Wuhan Iron & Steel and China Minmetals, the government-owned companies that own 30 per cent of Century Iron Mines, Chim is investing $C2 million ($2.04 million) in the egg venture. He’s drawing on capital originally intended for Century’s flagship Joyce Lake mine project straddling the Canadian provinces of Quebec, and Newfoundland and Labrador.
As recently as November, after tests indicated 24.3 million tonnes of reserves, Century was expecting to spend $C250 million on development and start production in 2017. But iron ore went from bad to worse as producers like Rio Tinto, Vale and BHP Billiton expanded output from lower-cost mines. At the same time, demand slowed from steelmakers in China, who use about 70 per cent of output.
Iron ore that touched a record $US191.70 ($261.17) a ton in February 2011 fetched $US56.31 on August 12, below the cost of production at some older mines. Joyce Lake needed $US58.25 to break even.
Canadian projects are more expensive than the mega mines in Australia. Iron Ore Co of Canada and Rio Tinto are probably losing money on their Labrador City operations, according to an April report by Alex Terentiew, a Raymond James analyst in Toronto.
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