Iron ore bounces and looks solid, but leveraged exposure is hard to find

There was concern in the opening months of the year that the Pilbara three of BHP, Rio Tinto and Fortescue would be left behind in the broad-based market advance because iron ore had slipped below $US100/t.

Given the monster 800 million tonnes a year they produce, and compared with the CY2023 average price of $US114/t, the concern with the price was a legitimate peak earnings concern. For as long as it lasted anyway.

Iron ore has since has since moseyed on up to more than $US115/t. It was a feature of the March quarter weakness, relatively speaking given it remains a hugely profitable business at $US100/t, that analysts did not slice their earnings expectations.

There was an expectation that iron ore would bounce back as it has. Citi was amongst the more bullish, last month setting a three-month target of $US120/t.

“On the fundamentals, inventories should start drawing by late March/early April. Restocking by steel mills at or below $100/t levels should offer support,” Citi said.

In its bull case (20% probability) for iron ore, Citi tipped a rise to $US130/t by 4Q 2024 in response to a combination of China policy easing aimed at supporting steel intensive sectors, a tightness in supply, especially from the majors, and lower scrap usage.

Juniors: CZR

It is against the backdrop of confidence that $US100/t-plus iron ore is here for the foreseeable future, juniors looking to break into the most lucrative mining pastime there is are receiving more interest than has been the case in recent years.

The copper and gold sectors are hot with investor interest in the juniors. And in a $US100/t-plus iron ore environment, it should also be the case with the iron ore junior sector. A bit like copper though, there aren’t many of them around.

And as it is, one mentioned here previously, Mark Creasy’s CZR Resources (ASX:CZR), has a deal to sell its 85% stake in the Robe Mesa iron ore project, next door to Rio’s Robe River operations, to a Chinese group for $102 million (Creasy has 15% interest in addition to his CZR shares).

That equates to about 43c a CZR share, which is kind of interesting given CZR was trading on Thursday for 29.5c. The discount is explained by the wait for clearance for the sale from our own Foreign Investment Review Board (FIRB), and the Chinese government.

Responses are expected this month. It can be a risky thing to second guess government decisions. But notably, the FIRB recently waved through the multi-billion deal for Hancock-SQM to acquire the Andover lithium developer in WA, Azure (ASX:AZS), with Andover a 60:40 joint venture with Creasy.

SQM, already a big investor in WA lithium, is 20% owned by China’s Tianqi, itself a big WA lithium producer from its control of the world’s best hard-rock lithium mine, the Greenbushes operation.

As for Beijing, the scale of the deal is unlikely to register on the radar.

Given the project is in Rio’s backyard, a counter-bid to the Chinese is also a possibility. Like the rest of us, Rio would like to know the FIRB’s attitude first.

Juniors: Macro Metals:

As CZR waits on the FIRB to clinch its exit from Pilbara iron ore so it can shift its focus to its Croydon gold project in the Pilbara along strike from De Grey’s (ASX:DEG) multi-million ounce Mallina development, another junior has stepped up to fill the void.

It is Macro Metals (ASX:M4M), trading at 3.1c in Thursday’s market for an (undiluted) market cap of $105 million. That is more than triple its value in early March when there was a board over-haul and a recapitalisation by the well-known trio of Evan Cranston, Tolga Kumova and Rob Jewson.

The overhaul included the appointment of Simon Rushton as managing director. Prior to 2019 he was executive general manager and company secretary for 12 years at Chris Ellison’s Mineral Resources (ASX:MIN), the fourth biggest ASX-listed iron producer.

Since then he has built a few mines and got involved in his own version of what is another MinRes business - contract materials crushing and screening. So it can be said he knows a thing or two about iron ore and operating in the Pilbara.

The new look Macro has a vision to build the next mid-tier iron ore producer in the Pilbara. To that end it recently expanded its portfolio of Pilbara and Mid-West iron ore projects. No JORC resources of scale reported yet, nor exchange-compliant exploration targets.

But its portfolio is certainly full of lots of promise. Too many to detail here, but Macro’s provided its own ranking of projects in its portfolio in an April 5 ASX announcement,

The Cane Bore and Catho Well projects in the west Pilbara were given “flagship” status “due to their scale potential and multiple advantageous transport logistics and non-process infrastructure opportunities”.

“The two projects both have proximal access to the sealed Nanutarra Road and are located adjacent to Mineral Resources’ Ken’s Bore Project infrastructure, including camp, airport with sealed runway and the haul road running to the Onslow Port (Cape Preston port is not far off up the Northwest Coastal Highway too).

Both are channel iron type targets, with the Callisto prospect at Cane Bore in particular notable for visually consistent pisolite mineralisation exposed in a mesa some 25m high and over an area of 850m by 1050m. There are others.

One of the more recent project pick-ups is the Deepdale project (channel iron and detrital style) adjacent to Rio’s Robe operations and err..CZR’s Robe Mesa project.

Iron ore history buffs will also get a kick from Macro’s Goldsworthy East project, 100km from Port Hedland and adjacent to BHP’s historic Mt Goldsworthy (55Mt at 63.5% produced between 1965 and 1982).

There has been no drilling on the prospect but two big targets have been identified from magnetic interpretation showing a corridor extending in to the prospect from the old Goldsworthy pit.

Macro intends getting busy with the drill bit at its priority projects before long.

Juniors: Arrow Minerals:

The last mid-tier iron ore producer built in the Pilbara was Atlas Iron under the leadership of the ever-bustling David Flanagan.

Atlas was acquired by Gina Rinehart in 2018, by which time Flanagan had long left the company. But he still gets excited by what a junior can achieve in iron ore.

His excitement level is maxing again thanks to the potential for his new vehicle to pursue iron ore riches, Arrow Minerals (ASX:AMD), to kick goals at its Simandou North project in Guinea.

As its name implies, the project is just to the north of the $US26 billion and counting development by Rio Tinto and Chinese interests of the iron riches of the Simandou mountain range, the world’s biggest undeveloped high-grade iron ore deposit.

Arrow has only recently rolled up the drilling rigs on to its ground and it is fair to say that first drill results targeting the host banded iron formation (BIF) on its ground did not excite the market.

But it is early days yet with Arrow acknowledging that it was still trying to establish some basic geological facts such as the orientation of the mineralisation. So it was no surprise that Arrow has come back from its recent highs to 0.4c in Thursday’s market for a $40m market cap.

It might be baby out with the bathwater sort of treatment though as there is some excitement around the potential for Arrow to work up a near-term production opportunity from the extensive canga style (alluvial or detrital) iron ore on its ground (the style is part of Simandou’s resource base).

Importantly, before spending too much on drilling for canga, Arrow first conducted some metallurgical testwork that indicated the material could be upgraded by around 8% by simple crushing and screening.

This could well put the canga in reach of the 58 per cent Fe material as a direct shipping ore product, which is the sort of stuff Chinese steelmakers will eat all day, every day.

It’s why Arrow has rolled up some canga-focussed drill rigs at the project in addition to those drilling away on the BIF targets.