Pinned valuation:
Valuation deleted
13-Aug-2024: Regarding my final comment at the bottom of my FMG valuation - I am not currently holding FMG at this point in time - I exited FMG in May and June and MIN in June and July (two different portfolios). I do not hold BHP either. I'm happy to be on the sidelines with iron ore exposure at the present time. I got out of FMG just before those large block trade sells went through and the share price tanked. I didn't know that was coming - I just got lucky. However I have since learned that the seller (a global commodities trader) was moving out of iron ore and increasing their exposure to copper. There are a few things going on at FMG right now that cause me to have some reluctance to be onboard right now, from more selling pressure than buying pressure, to Twiggy backing away from the Hydrogen focus, to the mixed outlook for iron ore demand (and the supply/demand balance). And the continued exodus of senior management suggesting all is not well in the C-suite. I like the company, and will likely be back in at some point, but I'm out at the moment.
14-Aug-2024: Iron Ore stocks provided some headwinds for the market today:
The only ASX20 stocks down were our three largest iron ore miners and NAB, who have the most exposure to mining businesses - see here: https://www.marketforces.org.au/campaigns/banks/nab/ - that link is about NAB being the largest funder of fossil fuels companies in Australia, but it is well known that they are Australia's business bank, and that particularly relates to large businesses. There are probably other reasons why NAB did worse than the other banks today, but they are the most exposed to the iron ore sector and to mining in general, to the best of my knowledge, of our big 5 banks (including Macquarie - although Macquarie is more of an asset manager than a bank). The reason why sentiment around iron ore is taking a dive is, according to Marcus Padley's EOD newsletter: Asian price falls and iron ore futures in Singapore falling a further 2.3% to $US96.25 a tonne.
BHP, RIO and FMG dragged the index back from a 7910 high. RIO down -2.6%, BHP down -2.8% and both MIN & FMG were down -4.6%. If you click on this: https://newsletters.miningnews.net/q/1meh7msb0RdK6tdnzfFZ/wv and scroll down to the biggest SP falls of the day, you can see the worst performers were all iron ore miners, followed by LTM (lithium), S32 (base metals) and some coal companies, as well as Red 5 (RED) which I presume is some former RED investors exiting after the SLR-RED merger with SLR's management now running RED.
Gold was mixed with about as many goldies rising as there were goldies ending the day with lower share prices - but the sector as a whole was up.
Outside of gold (which was mixed) most other miners were sold down today, mostly on China concerns apparently, but more broadly the sentiment around future demand is waning. However the market is fickle; you never know what tomorrow will bring. For now however, the one-year charts of Australia's big miners - who do, between them, make up a fair chunk of our market - look fairly sad - all heading south east at a good clip. BHP, RIO, FMG, S32, all well down. MIN, BHP and FMG are making new year lows, S32 is about to make a new year low, and RIO is heading towards a new year low also. It wouldn't take much to turn the frown upside down, but I'll wait for that to happen before getting onboard any of these companies.
To be clear, I never hold RIO anyway, I rarely hold BHP, but I do like FMG, MIN and I used to like S32 (not so much now though), but I don't want to hold any of them right now. I sold out of the last of my MIN in July, and I've been out of S32 and FMG since June. Good companies to NOT be holding at this point IMO.
They'll turn, and I will miss the bottom, but that's OK, I'll also miss the fall between here and there.
https://www.afr.com/companies/mining/china-warns-winter-is-coming-for-iron-ore-miners-20240814-p5k2fv [Aug 14, 2024, 7:25pm, Peter Ker, AFR]
Chinese steelmaker Baowu has warned of a “long and harsh winter” ahead for the steel industry putting Australian iron ore miners on notice and sending the price of Australia’s No.1 export tumbling for the sixth time in seven days.
BHP and Fortescue shares fell to the lowest level since November 2022 while shares in Mineral Resources slumped to a 25-month low. The oversupply of Chinese steel has prompted Indian steelmakers to accuse China of exporting at “predatory prices”.
Benchmark iron ore prices have slumped 30 per cent this year to $US98.25 a tonne on August 13, according to S&P Global’s Platts, meaning the price is nearing the $US80 a tonne support level where BHP believes a large chunk of seaborne supply would be unviable.
Bundles of steel tubes at a metal stock yard in Shanghai. Bloomberg
Weak demand from the Chinese property sector and robust supply has forced steel prices down to almost $US500 a tonne, and prompted Chinese mills to ramp-up steel exports to an annualised rate of about 100 million tonnes a year.
Chinese government-owned Baowu is the world’s biggest steelmaker. Baowu chairman Hu Wangming issued a statement on Wednesday urging his staff to focus on cash preservation because the industry downturn was likely to last longer than expected.
“In the process of crossing the long and harsh winter, cash is more important than profit,” he said, according to Bloomberg. “Financial departments at all levels should pay more attention to the security of the company’s funding.”
Baowu is partnering with Rio Tinto on construction of a new Australian iron ore mine at Western Ridge and is also a shareholder in Mineral Resources’ new iron ore mining and export hub in the West Pilbara.
Mineral Resources believes the new West Pilbara province will be viable so long as iron ore prices are above $45 a tonne. But the downturn is still inconvenient for the company as it sells assets to service its $4.4 billion debt load at a time of weak prices for its other product, lithium.
“We have a strong relationship with our partner Baowu, who have expressed their commitment to unlocking the project’s full potential,” said Mineral Resources managing director Chris Ellison on Wednesday.
Iron ore is Australia’s most lucrative export and the Department of Industry expects miners like Rio Tinto, BHP and Fortescue will collectively ship $114 billion of the material in the year to June 2025.
While those three big miners can put ore on a ship for less than $US30 a tonne, higher cost Australian miners like Cufe Limited spend closer to $US84 producing each tonne, and Mineral Resources has already mothballed its Yilgarn iron ore mines at the expense of 1000 jobs.
Unit costs at Fenix Resources’ iron ore mines in WA are closer to $US53 a tonne and executive chairman John Welborn said Baowu was trying to “jawbone” the iron ore price lower as Chinese mills had often done.
“It sounds like Groundhog Day,” he said, with a nod to the 1993 film of the same name. “If it’s going to be hard for Baowu, then he is recognising there is some resilience in the [iron ore] price.”
The flood of cheap Chinese steel exports is raising tensions in India, where steelmakers like Tata have urged the Indian government to tackle the issue with Beijing.
“China exporting 100 million tonnes [per year of steel] is not something the world can live with,” said Tata chief TV Narendran on August 1. “It is predatory pricing which is again detrimental to the future of this industry in India.”
The other Australian commodity consumed by Asian steel mills – hard coking coal from Queensland – was fetching $US206 a tonne on August 13 according to Platts.
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https://www.focus-economics.com/commodities/energy/coking-coal/
https://tradingeconomics.com/commodity/iron-ore
15-Aug-2024: Compared to yesterday (Wednesday) - Same names, different order. PLS also in the mix - of biggest losers today (I hold PLS) - due to their acquisition of Latin Resources (LRS) - which I don't mind - coz PLS is undervalued IMO and they are using their scrip for this buy, not paying cash. Pilbara Minerals (PLS) has agreed a scheme of arrangement deal with Latin Resources, valuing LRS at 20c (based on a $2.85 PLS price, i.e. yesterday's closing price) - PLS closed down -3.86% (or -11 cents) @ $2.74 today. Could be worse.
Like I say, I don't mind them buying underpriced assets by issuing shares when their share price is low - however I do have some concerns about the location of this project - in Brazil. I'd rather they stuck to Australia, but I guess the big hard rock lithium deposits in Australia are already part owned by Australian billionaires and it's just too hard here. The combined Pilbara/Latin entity will be 93.6% owned by PLS shareholders, giving them ownership of the Salinas project which currently sits at 78Mt @ 1.24% Li2O and is at PEA stage. The deal has approval of LRS’ biggest shareholder and the LRS board. The Money of Mine Director's Special newsletter this morning asked: What does this say about Canadian development stories?
Hint: The Canadian government has been making it harder and harder for companies outside of Canada to invest in Canadian mining projects recently, and they're not just targeting Chinese investment, they are causing ALL mining companies to look elsewhere now for M&A targets.
Latin Resources (LRS) finished the day up +54.17% @ 18.5 cps (i.e. 6.5 cps higher than yeserdays 12 cps close).
Anyway, with the addition of PLS, the biggest losers list in Australian mining companies featured many of the same names as yesterday - see here: https://newsletters.miningnews.net/q/1meh7msCxpkrbFC0sOHR/wv - scroll down for the ones that ended in the red - which once again includes RED (Red 5), iron ore miners, and coal companies, and Arcadium Lithium (LTM), which also all made yesterday's biggest losers list. There were a few more goldies on that list today. Gold stocks were mixed again - some winners (NME +46.15%, LSA +28.57%, PDI +15.39% as PRU disclose they've bought a strategic stake in PDI but have no current intention of launching a takeover offer for PDI, OBM +7.78%, EMR +4.43%), some losers (GSM -8.33%, PNR -6.67%, SXG -6.15%, MEK -5.56%) (I hold MEK and EMR, and have a trading position here in PNR).
Utilities had a rough day.
The biggest losers within Australia's largest 20 companies (the ASX20) were the iron ore miners again (and Goodman Group):
Further Reading: https://www.miningnews.net/capital-markets/news/4347016/corporate-adventures-iron-ores-misadventure-highlight-negative-session-asx-miners
Today's 52-week LOW list (on the right, below) included plenty of iron ore and lithium companies, as well as a mining and engineering services company I hold, GR Engineering Services (GNG), down -3.49% on no news, but higher volume than usual.
Here's what iron ore prices in Singapore have done over the past month:
Other worrying graphs in terms of iron ore demand:
According to MarcusToday (where those graphs came from) - Chinese steelmakers slashed output last month. Steel production in July plunged about 9% on both the month and the year to 82.94 million tons, the lowest figure reported in 2024.
This has implications across other metals as well, but mostly impacts iron ore and coking coal, and my exposure to those sectors at this point is limited - only through mining services providers such as NRW Holdings (NWH) who reported today and finished up +9.72% @ $3.50 (+31 cps) and made the 12-month HIGH list above.
There's always something moving in the right direction - sometimes you just have to look somewhere different to find it.