Centaurus to ride iron ore wave, says Sydney analyst
The surging iron ore price has sparked renewed investor interest in long-dormant iron ore assets
12th April 2019
Resources Rising Stars
The surging iron ore price has sparked renewed investor interest in long-dormant iron ore assets, with juniors such as Centaurus Metals (ASX: CTM) well placed to benefit given its ownership of an advanced iron ore development project in Brazil capable of moving into production quickly.
This is the key conclusion of veteran Sydney-based resource analyst Gavin Wendt.
Wendt says that while the surging iron ore price has obviously benefited major producers like Rio Tinto, BHP and FMG, a “trickle down” effect is also beginning to occur with juniors – particularly those with projects that have some hope of moving into production relatively quickly.
“62% Fe iron ore prices have hit fresh multi-year peaks, reaching their highest level since August 2014 at $95 a tonne, having rallied by 45% from late November 2018,” he said. “Meanwhile, 58% and 65% fines have also surged higher, reaching $76 and $105 a tonne respectively.
“58% fines have rallied significantly harder than mid and higher grades since late last year, helped by supply disruptions in Brazil and Australia — the world’s largest iron ore seaborne exporters — along with less onerous environmental restrictions governing industrial output in northern China.”
Wendt notes that 58% fines are now up a staggering 93% since late November are now at levels not seen since May 2014 (when iron ore stocks were hot) – buoyed by improved activity levels across China’s non-manufacturing and private sectors.
“Along with bullish data and ongoing speculation surrounding the outlook for Brazilian and Australian seaborne supply, stronger steel prices in China have also helped to boost sentiment towards the outlook for demand,” Wendt wrote in his widely-circulated Mine Life investment newsletter.
Wendt cites Centaurus as a junior which is well placed to benefit from the return of investor interest to the iron sector.
Centaurus, which was originally established as an iron ore focused junior in Brazil, recently announced a renewed focus on its development‐ready Jambreiro Iron Ore Project following a $2.2 million fund raising.
“The key drivers for the renewed iron ore focus are the recent strong recovery in the iron ore price, together with renewed interest from prospective project partners and off-takers,” Wendt says.
“As a reminder, Centaurus originally completed a positive Bankable Feasibility Study (BFS) for the Jambreiro Project back in November 2012, which was subsequently revised to take account of a 1Mtpa iron ore production scenario, demonstrating low operating costs and strong economics.
“Centaurus will now undertake an update of the previous Feasibility Study, based on significant changes and enhancement in a number of key parameters, along with a strategic development review of the project.”
Wendt says Centaurus’ recent decision to raise the profile of its Jambreiro project is a prudent one, given recent developments in the iron ore space.
Located in Central Brazil’s famed “iron quadrangle”, Jambreiro contained a JORC 2004 Ore Reserve of 48.5Mt at 28.1% Fe which can be beneficiated to a high-grade product using straightforward processing.
The Project is fully-licensed for 3Mtpa of production.
“The Jambreiro project represents a strategic asset in the Brazilian domestic iron ore and steel sector, particularly in view of the premium pricing environment that currently exists for high-grade (65% Fe), low‐impurity ore (4.5% SiO2, 0.80% Al2O3 and 0.01% P),” Wendt says.
“Mine gate sales of 62% Fe ore are occurring in close proximity to the Jambreiro project which, based on information available to Centaurus, indicates that a price of R$100‐R$120 tonne is presently comfortably being achieved for such ore.
“Given the higher grade of the Jambreiro ore, there is a likelihood that those prices are likely to be at least representative of the current market for its product.”
“All of this makes Centaurus a pretty interesting small-cap stock to keep an eye on, particularly as it has a number of other attractive assets in its portfolio,” Wendt says.
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