26-Feb-2025: Today, FMG announced they'd increased their ownership of Red Hawk Mining Limited (RHK) from 91.57% to 95.04%, however that is immaterial since they can proceed with compulsory acquisition of the remainder of RHK (that they do not already own) once they reach 90% and they had already reached over 90% prior to this notice (Change-in-substantial-holding-from-FMG.PDF).

What has likely moved their share price today (they were down by another -6.23% today to close at $16.86/share) was their BMO Global Metals, Mining & Critical Minerals Conference Presentation yesterday (24th Feb, so presented on Monday) that they uploaded to the ASX announcements platform at 8:07am yesterday morning (25th Feb). Their SP closed down -52 cps (-2.81%) yesterday, but they were down another -$1.12/share today (-6.23%) as analysts processed their presentation and updated their models with the latest cost and capex/opex numbers.

Brokers, analysts and investors would also be factoring in additional iron ore supply that is coming and is higher grade than FMG's iron ore, more on that in a minute.

FMG still have super-low costs, however their iron ore is of lesser quality than RIO's and BHP's, so FMG don't get the full Platts Iron Ore Index (IODEX) price which is based on a standard specification of iron ore fines that contains 62% iron, 2.25% alumina, 4% silica, and 0.09% phosphorus, a standard which FMG can't meet with their lower grade ore.

Fortescue's iron ore has historically been a mix of grades, but the company has been working to increase the percentage of ore with an iron grade above 60%. They have not gotten up to that 62% standard yet, and seem a fair way off that mark TBH.

The dominant iron ore mined in Australia since the 1960s, hematite is red and typically contains more than 55% iron. This is the main iron ore type that FMG mine. Below is slide 3 from the BMO Conference deck (link above):

As you can see there, they have sub-US$20/wet metric tonne C1 costs (good!), however they have only been receiving an average price of US$85/dry metric tonne (through H1 of FY2025, so the half ending December 31st, 2024). That's obviously less than what BHP and RIO get for their own higher grade ore.

My understanding is that the numbers in the following slide are feeding into analysts downgrades:

Higher capex and opex than expected, plus, also (and not mentioned in this slide deck) more supply to come online through RIO's Simandou in Guinea (Africa’s largest mining and related infrastructure project) and the unlocking of RIO's Rhodes Ridge in WA this week with Japanese giant Mitsui making the biggest investment in its 78-year history paying $US5.34 billion (A$8.4 billion) for a stake in the Rhodes Ridge iron ore project in a bid to secure guaranteed reserves of the resource to make steel and counter the rise of China.

As Canberra and Tokyo forge close defence ties to combat the growing threat of China in the Pacific, Japanese corporations have refocused their capital on Western Australia’s Pilbara, buying $10 billion worth of coal and iron ore mines in the past six months.

That's good, right? Yes, for RIO it is, and possibly Mitsui longer term, and Japanese companies do tend to take longer term views on their investments, which is why they can pay up (higher prices than others are prepared to pay), not get into a bidding war, and have clean and quick acquisitions. It is only with a longer term view that you can justify the sort of prices that the Japanese do pay for such assets; sometimes the Japanese view is multi-generational, something that is fairly unique to Japan in my experience.

Not so good for FMG and MinRes, because it just means that another very large higher grade iron ore deposit is going to be developed sooner rather than later, creating even further supply in a market where demand isn't growing at the same rate as supply is going to.

Iron ore hunger drove Japan’s monumental $8.4b Pilbara buy

by Peter Ker, Mark Wembridge and Jessica Sier, AFR, Feb 20, 2025 – 7.48pm:

Japanese giant Mitsui has made the biggest investment in its 78-year history paying $US5.34 billion ($8.4 billion) for a stake in the Rhodes Ridge iron ore project in a bid to secure guaranteed reserves of the resource to make steel and counter the rise of China.

As Canberra and Tokyo forge close defence ties to combat the growing threat of China in the Pacific, Japanese corporations have refocused their capital on Western Australia’s Pilbara, buying $10 billion worth of coal and iron ore mines in the past six months.

Western Range will allow Rio Tinto to maintain iron ore production from WA as other reserves deplete. Krystle Wright

“This deal fits geopolitically with what Japan and Australia are trying to do in the region,” said Ian Williams, a long-time M&A lawyer between Japanese and Australian companies who now consults to Herbert Smith Freehills.

“When you’re talking about energy security and resource security, you’re really talking about security in the wider sense. And securing supply chains is all part of this diplomatic push.”

The descendants of legendary West Australian explorer Peter Wright will receive $8.4 billion for their 40 per cent stake in Rhodes Ridge, a Rio Tinto-led project that Mitsui president Kenichi Hori described as “the last remaining crown jewel in the Pilbara”.

Former Rio chief executive Sam Walsh, now a director of Mitsui, described the Rhodes Ridge deal as a “win-win for all parties involved”.

“It reflects well on the Australia and Japan relationship and certainly a great result in terms of moving the project forward,” Mr Walsh said.

Mitsui director Sam Walsh, the former boss of Rio Tinto. Jason Alden

Mitsui will need to wait five years and spend billions of dollars on construction before Rhodes Ridge produces its first ore in 2030. Rio, meanwhile, is months away from delivering its first iron ore from two joint ventures with Chinese state-owned steelmaker Baowu at the Western Range mine in WA and Africa’s Simandou mine.

The Rhodes Ridge deal is the latest Japanese investment in Australian assets. Two Japanese firms – Nippon Steel and JFE Steel – spent $1.6 billion buying stakes in Whitehaven Coal’s Blackwater mine in August, and Japanese energy utilities bought $3.5 billion worth of LNG assets last year. Australian tech darling Altium was bought by Japanese semi-conductor company Renesas Electronics for $9.1 billion a year ago.

Iron ore is Australia’s most lucrative export industry and Asian steelmakers are expected to buy close to $108 billion worth of the commodity this year.

Most analysts, including BHP and the federal Industry department, believe Chinese demand for the commodity has peaked and prices may fall as supply from new mines ramps up.

The Industry department has forecast a 17 per cent slide in iron ore prices to $US76 a tonne – excluding shipping costs – by 2026, while Treasurer Jim Chalmers has based the federal budget on an iron ore price of $US60 a tonne.

But Hori said Mitsui did not think iron ore markets would be flooded with supply.

“Strong growth in steel production is expected in India and South East Asia, leading to expectations for a continued long-term increase in global crude steel production,” Hori said on Wednesday.

“There is expected to be an iron ore supply shortage, as some production from existing mines declines, and supply from both existing mines and new developments with a high probability of completion alone will not be sufficient to meet the growing demand.”

Rio Tinto chief executive Jakob Stausholm said the valuation put on Rhodes Ridge by Mitsui should make investors upgrade their assumptions about the longevity of the Pilbara industry.

“It just tells you the Pilbara has got many, many great – not years – but decades ahead,” he said.

Japanese trading firms such as Mitsui and Mitsubishi are famous in the Australian resources sector for their “patient capital”, typically buying minority stakes in some of the nation’s biggest and best mines.

Mitsui’s deal with Wright family descendants Leonie Baldock and Alexandra Burt, who were advised by Macquarie, was conceived two decades ago.

“We have been building a relationship with the owner families since the 2000s,” said Hori. “Now, after 20 years of efforts, we have reached an agreement to acquire an interest in this incredibly scarce asset.”

At 6.8 billion tonnes, Rhodes Ridge is a giant iron ore deposit with attractive metallurgical features such as low phosphorus levels and iron grades above 61 per cent.

For context, Fortescue has shipped a cumulative total of 2 billion tonnes of Australian iron ore in the past 17 years, and it typically sells ore with less than 60 per cent iron.

The mine is slated to run for 25 years according to the approvals documents lodged with WA regulators, but Rhodes Ridge contains enough iron ore to sustain the mine for 170 years at its initial production rate of 40 million tonnes per year.

Fortescue’s mining chief, Dino Otranto, said the deal was “fantastic” for the Pilbara industry.

“It is quite a large number, which reinforces the value of the Pilbara region. It’s great to see you’ve got the Japanese taking long-term positions in the Pilbara to sustain steel demand for the next generation,” he said.

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Reclusive iron ore magnates $8b richer after selling to Japan’s Mitsui

by Primrose Riordan and Peter Ker, AFR, Feb 19, 2025 – 3.21pm:

Perth’s Bennett and Wright families are $8 billion wealthier after agreeing to sell the majority of their stakes in the giant Rhodes Ridge iron ore project in Western Australia to Japanese conglomerate Mitsui & Co.

The families are the heirs to the fortune made by Peter Wright, the business partner of mining magnate Lang Hancock. While Hancock’s daughter, Gina Rinehart, oversees a massive iron ore empire, the Bennett and Wright families struck a long-term partnership with Rio Tinto.

On Wednesday, Mitsui and Rio announced the Japanese giant would acquire a large proportion of the Bennett and Wright families’ stake in the partnership. The Bennett family will keep a 10 per cent stake.

Both families are already on the Financial Review Rich List. Last year, Angela Bennett, Peter’s 79-year-old daughter, had an estimated fortune of $5 billion. Two of her brother Michael’s children, Leonie Baldock and Alexandra Burt, were worth $4.13 billion.

The Bennett and Wright family tree. The deal will benefit Angela, Angela’s children and Michael’s daughters Alexandra Burt and Leonie Baldock.  AFR

“[Baldock and Burt’s company VOC] does not have a strategic ambition to directly participate in the development of a project of this scale, however it wishes to see Rhodes Ridge ultimately become a production asset as part of its ongoing family legacy in the Pilbara region,” the two daughters said in a statement.

Once the transaction completes, the families will have an estimate fortune of $8 billion each, which would place them above poker machine billionaire Len Ainsworth, trucking magnate Lindsay Fox and James Packer.

More than 1200 kilometres from Perth, the Rhodes Ridge project has an estimated 6.8 billion tonnes of high-grade ore, which could make it the largest and richest undeveloped iron ore operation on earth.

The sale is a vote of confidence in the future of the iron ore industry by one of Japan’s biggest conglomerates, just one day after BHP predicted demand for the commodity had peaked and prices were likely to decline.

Rhodes Ridge will not start production until 2030 and approvals documents filed to WA regulators suggest the mine will run for 25 years.

Simon Trott, Rio Tinto’s iron ore chief executive, in a supplied photo at the Rhodes Ridge deposit. 

In reality, it contains enough ore to run for more than double that period, suggesting Mitsui expects the Pilbara iron ore district to have a major role to play in global supply for many decades to come.

Mitsui published an investor briefing detailing the acquisition on Wednesday with bullish projections for iron ore demand and prices. The company expects global crude steel production to rise by 14 per cent between 2030 and 2050. It believes the ore from Rhodes Ridge will be compatible with low carbon steelmaking technologies.

The Japanese firm said it expects to make ¥100 billion per year ($1.03 billion) of cash flow from its stake in the first stage of the mine, where Mitsui will have rights to 16 million of the 40 million tonnes of iron ore produced.

The ¥100 billion disclosure suggests Mitsui expects to make about $US41 of free cash flow on every tonne sold from Rhodes Ridge. After adding the cost of mining the ore, royalty payments to governments and native title custodians and the infrastructure fees that Rhodes Ridge will pay to Rio for use of the rail and port, Mitsui appears to be banking on iron ore prices averaging between $US80 and $US100 per tonne between now and 2055.

“A pre-feasibility study to progress the development of Rhodes Ridge is expected to be completed this year,” Rio said. “The development would use Rio Tinto’s rail, port and power infrastructure.” Mitsui told the Tokyo Stock Exchange that the deal was subject to due diligence and government approvals after which the parties would enter a final agreement.

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The real reason for Mitsui Japan’s $8.4b iron ore grab

The trading house aims to secure its future steel supplies to South-East Asia to counter China’s influence.

by Jessica Sier, AFR North Asia correspondent [Feb 20, 2025 – 4.02pm]:

Tokyo | Japan Inc never just does business deals to make money.

Japanese trading house Mitsui’s decision this week to buy a mammoth $US5.34 billion ($8.4 billion) stake in a giant West Australia iron ore project has a lot to do with a battle with China for influence across the region.

Mitsui bought two stakes in Rhodes Ridge from VOC Group and AMB Holdings. 

The acquisition of a 40 per cent stake in Rio Tinto’s untapped Rhodes Ridge project is Mitsui’s largest investment ever. Mitsui president Kenichi Hori hailed it as a “crown jewel asset” in the metals-rich Pilbara region, and came just one day after BHP predicted demand for the commodity had peaked and prices were likely to decline.

“After years of relationship-building spanning across generations, we were able to negotiate for this agreement,” Hori said in Tokyo.

The deal is part of a pattern of Japanese firms deepening their investments in resource projects in Australia partly so they can strengthen supply of steel, energy and other resources to growing Asian nations and outmanoeuvre China.

“This deal fits geopolitically with what Japan and Australia are trying to do in the region,” Ian Williams, a long-time M&A lawyer between Japanese and Australian companies, said.

“When you’re talking about energy security and resource security, you’re really talking about security in the wider sense. And securing supply chains is all part of this diplomatic push.”

According to industry sources close to the deal, Mitsui’s investment aims to enhance future supplies to South-East Asia, where construction booms in Vietnam and Thailand are driving a demand for steel and energy.

One of the world’s largest undeveloped iron ore deposits, Rhodes Ridge contains about 6.8 billion metric tonnes of mineral resources. Production is expected to begin in 2030, with Mitsui’s share initially projected at 16 million tonnes annually, eventually rising to more than 40 million tonnes.

Mitsui boss Kenichi Hori has hailed the Pilbara investment. Bloomberg

Industry analysts say having pricing control over critical inputs makes strategic sense in a world of increasing trade tensions and tariff threats from the Trump administration that include steel and aluminium.

Japanese companies such as Mitsui, which have historically acted in Japan’s national interest alongside the interests of shareholders, view investments such as Rhodes Ridge as instruments of economic diplomacy, as well as business opportunities.

“It’s a very healthy price tag for the highest quality production in the Pilbara at the bottom of the cost curve,” said Ben Cleary, portfolio manager at the Tribeca Global Natural Resources Fund.

“That the Japanese are willing to deploy those sorts of dollars into iron ore projects like this shows they’re very serious about keeping their edge in the growth of Asia.”

Last August, Nippon Steel and JFE Steel took a combined 30 per cent stake in Whitehaven’s Blackwater coal mine for $1.08 billion, employing a similar strategy of becoming both investors and offtakers.

Japanese energy companies are also on-selling surplus Australian gas to allies in South-East Asia to bolster Japan’s influence, while securing its economic future as an energy trader.

The deal comes as China deepens its own resource supply chains in South-East Asia, including through steel exports, as it strengthens its strategic influence in the region.

A fall in domestic demand in China, which accounts for more than 50 per cent of global steel production, has led to complaints of China dumping excess steel in developing markets.

Mitsui has linked the Rhodes Ridge investment to anticipated strong demand growth in India and South-East Asia, which is expected to offset declining consumption in China.

Japan’s Prime Minister, Shigeru Ishiba, has already visited Malaysia and Indonesia this year with a view to cement economic and defence ties. Earlier this year, Indonesia became a full member of the BRICS grouping of emerging economies.

This week’s transaction structure involves Mitsui acquiring a 25 per cent stake from VOC Group and another 15 per cent from AMB Holdings, leaving Rio Tinto with 50 per cent and AMB with 10 per cent. The deal is expected to close by March next year.

The investment is projected to significantly boost Mitsui’s operating cash flow, potentially generating an additional ¥100 billion ($1.05 billion) initially and ¥250 billion after expansion, while providing critical resources to support Japan’s strategic interests throughout Asia.

For Australia, the deal represents confidence in its resources sector despite challenges including Queensland’s controversial “progressive royalty scheme”, which Nippon Steel previously cited as a concern for future investment in Australian coal assets.

“It is quite a large number, which reinforces the value of the Pilbara region,” Fortescue Metals CEO Dino Otranto said. “It’s great to see you’ve got the Japanese taking long-term positions in the Pilbara to sustain steel demand for the next generation. I think it’s fantastic.”

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My comment on that final line: Dino Otranto, Fortescue Metals CEO, thinks this news is "fantastic" and reinforces the value of the Pilbara region. OK, but how does it benefit Fortescue?

The problem is, there is no shortage of large high grade iron ore deposits around the globe, and a number of the better ones are going to be developed shortly. While Rhodes Ridge might be further inland than all of RIO's other Pilbara (WA) deposits, it's close to RIO's West Angelas iron ore mine (which is just to the west of Rhodes Ridge as shown below), and Rhodes Ridge will use all of the rail infrastructure that RIO have already built for their existing mines in the Pilbara, and will be very low cost once it's up and running. RIO just need to extend the rail line east from West Angelas, and their transportation and port infrastructure is complete for Rhodes Ridge.

It's just further supply that is going to come online and compete with the likes of FMG and MIN.

Source: We Unpack the Biggest Ever Undeveloped Mine Deal, Money of Mine Podcast, Feb 24, 2025 [youtube]

Further Reading:

20-Feb-2025: https://www.afr.com/markets/commodities/investors-dump-iron-ore-stocks-as-big-miners-enter-a-new-era-20250220-p5ldo7

By Alex Gluyas, AFR Markets reporter.

Investors dump iron ore stocks as big miners enter a new era

The major producers are posting lower profits and slashing dividends. The pattern is expected to accelerate as a new wave of iron ore supply hits prices.

Investors are preparing for a new era of slumping profits and hefty dividend cuts by the world’s largest miners as iron ore markets brace for a flood of supply to trigger a collapse in prices.

Fortescue and Rio Tinto became the latest mining giants on Thursday to reveal the full effect from China’s property crisis, which caused iron ore prices to plunge nearly 30 per cent last year, forcing boards to slash shareholder payouts.

A fresh wave of iron ore supply to the market this year is expected to send prices below $US100 a tonne. AFR

Rio will pay its lowest dividend in seven years while Fortescue sliced its payout by more than 50 per cent after its first-half profit plunged by 53 per cent. Earlier in the week BHP said it would pay its lowest interim dividend in eights years after a 23 per cent profit slump.

The results triggered a sell-off in the sharemarket with Fortescue diving 6.2 per cent to $18.24, Rio Tinto 1.5 per cent to $120.09 and BHP 2 per cent to $40.15. That extended last year’s rout which saw the S&P/ASX 200 Resources Index plunging nearly 20 per cent.

Fund managers are expecting further pain for the heavyweight mining sector, which could accelerate the local sharemarket’s retreat this week from record levels.

“We’re not even close to the end of these sorts of results,” warned Perennial fund manager and resources analyst Sam Berridge. “The slump in iron ore prices over the past 12 months is largely a result of weak demand from China ... we haven’t even had a meaningful increase in supply yet.”

Berridge, who runs Perennial’s Natural Resources Fund, believes iron ore prices will average $US80 a tonne next year – compared with current levels of around $US106 a tonne in Singapore – and is happy to not own any iron ore miners despite some analysts declaring they are too cheap to ignore.

Westpac is even more bearish, warning that prices could collapse to $US70 a tonne this year as Rio Tinto’s massive Simandou project in Guinea adds a fresh wave of supply to the physical market.

“There’s high-cost production still online today which needs to get bumped off the end of the cost curve by that incoming supply from Guinea,” added Berridge. “That suggests prices are going to tick down further.”

Supply disruptions at Australia’s biggest iron ore port caused by Tropical Cyclone Zelia have helped keep prices well north of $US100 a tonne.

“It’s clear that exports from Australia will definitely have been impacted at the same time as heavy rainfall in Brazil has added to concerns about supply,” said Westpac head of commodity strategy Robert Rennie.

That has coincided with hopes that Beijing will announce further stimulus at next month’s Two Sessions – an annual meeting of China’s top legislative and advisory bodies – which Rennie believes will keep iron ore trading in the $US105 to $US110 range before crashing later this year.

Indeed, BHP has noted that supply is already outpacing demand – it expects the combined annual shipments from leading producers to have hit record levels in 2024, which has only added to the huge stockpiles sitting at Chinese ports.

Even so, BHP is studying options to raise its Australian iron ore output higher still in the long term and Fortescue is ramping up production at its Iron Bridge project. Rio Tinto said it was on track to deliver first production at Simandou later this year.

“Supply growth from major producers is anticipated to continue in the coming years,” BHP warned. “New iron ore projects in Africa and potentially some mine restarts are expected to bring further supply pressures from 2026.”

However, BHP chief executive Mike Henry said he was seeing “early signs of recovery” in the Chinese economy. Indeed, data this week showed the decline in new home sales ease for a fifth month in January, suggesting values were beginning to stabilise.

While the figures offer a glimmer of hope for the beleaguered property sector, a pick-up in sales and new construction will be needed to support demand for the steel-making ingredient, according to ANZ.

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My comment on those two final sentences: I wouldn't be betting on a significant increase in Chinese construction supporting the iron ore price in the near to mid term - China has already overbuilt significantly and they are pivoting to targeting internal consumption increases now, rather than stimulis via infrastructure and/or property construction. Those days are behind us now.

More:

https://www.afr.com/markets/commodities/iron-ore-faces-riot-point-in-2025-as-rio-tinto-floods-the-market-20241210-p5kxc4 [26-Dec-2024]

Disc: Not held. I have no direct exposure to iron ore miners at this point in time, having sold out of FMG and MIN earlier last year. I'm not particularly bullish on iron ore demand increasing ahead of supply, so see no reason to have iron ore exposure now. Far too much downside risk, as we have seen with FMG and MIN over the past year. Both MIN & FMG have their own issues outside of the iron ore price and the iron ore supply/demand equation going forwards, but the lack of clarity on future iron ore demand vs supply is just another reason to avoid them for now.

FMG have dropped by over $10/share since being over $27/share in May 2024, now $16.86/share and falling; that's a circa -38% SP fall in just under 9 months and the risk/reward equation hasn't looked good to me at any time during that 9 month period, and looks even worse now, so staying well clear.

Perhaps that $15/share resistance level holds. Perhaps not. But I won't be buying back in regardless. I've made money on FMG in prior years, and now it's time to look elsewhere for better opportunities IMO.